Fiduciary duties in a downturn

Five ways you can steward your money in an economic downturn.

Durantae Lucas
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August 12, 2022

Managing money in an unknown economic environment

Recession or not, we’ve had interest rate increases, negative GDP for a few quarters, inflation, employment challenges and many other factors that continue to drive where we are today. What does that mean for you and your business?

In any economic environment we are always principally focused on the going concern, meaning what is the life of our business? Challenging times bring this question to the forefront as we seek to navigate murky waters. Some companies were fortunate enough to have closed rounds before things took a dip, while others are having to re-tool the deck to align values with investors’ expectations. In either case, responsible growth is the way as many companies consider going back to the Rule of 40.  Even if a company had closed on favorable terms ahead of the correction, the market conditions could remain unchanged by the time cash runs out. Therefore, you could see a “discount” on the business in a subsequent round. So be thinking of ways to extend the runway as much as possible while also reaching important milestones. 

Things to consider in the next 12-18 months:

Customers

In the current environment, challenges for a business mean potential challenges for our customers as well.  We’d do well to evaluate the industries we service and keep our ears open to what hurdles our customers are facing. Consider ways to position yourself to get ahead of potential issues, and how you will handle a customer that is suddenly evaluating your product. 

As customer challenges increase, we may see this affect our accounts receivable and days-sales-outstanding. To help mitigate, consider creating more intentional touchpoints. Automate notifications or follow up manually to remind a client of a bill outstanding. Look into factoring for large receivables. When dealing with larger clients, they may require less favorable terms like net 60 or net 90. Some companies will give you cash for the amount of unpaid receivables for a fee. This may be worth exploring to help float the business and avoid selling any more equity in the interim. Incentivize quicker payment from customers by offering terms. Offering a discount like ‘2/10 net 30’ may incentivize more customers to pay sooner than they normally would. Be sure to offer flexible payment methods to receive these funds quicker as well like credit card, ACH, and wire transfers.

Tools

Get familiar with the tools you’re paying for. Any software or memberships that aren’t adding to the value or current mission in a measurable way are better off being appropriately scaled back, paused or canceled completely. Conversely this may also be a good time to find a deal if you’re in the market for a must have software or tool, so be sure to ask explicitly for any end of quarter deals or sales that may be offered.

Maximize cash flow. 

Consider putting more items on credit where available at as minimum cost as possible. Pay bills on the due date rather than immediately unless there’s a discount. Work with debtors to consider ways to close out large debts at a discount, or see if they’re open to negotiating new terms.

Leverage existing relationships.

Reach out to your bank representative and see what options are available to you. Even if things are in a relatively good state and the business is thriving, there may be ways to make more on cash that is sitting like a ZBA or money market account.

Reroll the Budget. 

This may include re-evaluating plans for new hires, sales forecasts, tools etc. Readjust the plan to meet the new needs. Reroll doesn’t mean to slash everything, but trimming the fat can be helpful. Couple budgets with a variance analysis to see where you’re excelling and reveal areas of opportunity.Expect to see more changes to come. Keeping high level goals of the business in mind, while not overspending will be key in order to thrive. Check on your customers, tighten up receivables, consolidate some spending, and leverage existing relationships to help extend runway as create more value in your business.

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