Business in the New World: Where Cash is King and Strategy is Queen

Back in 2010, Harvard Business Review Study published a study on how companies fared coming out of the Great Recession based upon their approach to the severe economic downturn. The study revealed that those companies that went into a slash-and-burn survival mode struggled more and had slower recoveries compared to their peers. At the other end of the spectrum, companies that “boldly invested” in the downturn didn’t fare much better than their competition either.

The secret sauce was balancing the need for reductions and cuts while investing for recovery and growth in the future. Short and long-term implications of actions were considered in decision making rather than across-the-board edicts. Investment in maintaining and expanding customer relationships, research and development, and achieving long-lasting operational efficiencies sets the stage for life after the crisis. The goal is to strike the right balance between defensive and forward-thinking strategies.

That’s not to say that these more successful companies ignored making cuts. They simply made more strategic cuts, balancing the need for sound cash management with an eye on preparing for the future.

As the country adapts to a new Administration, it remains to be seen how quickly election promises of tarriffs and deportations are implemented. If you are a business that depends on imports and/or a work force that could be targeted for deportation, your business could face unprecedented challenges. Now, more than ever, cash is king in times of uncertainty and potential input-cost inflation.

With that in mind, here are some “king-sized” steps to consider for your business:

• Project out your cash flow: This is not optional. If you are operating without a cash flow projection, you are making decisions in a void which could have serious consequences. If you’re not sure how to do this, get help.

• Accelerate collections on invoices: It’s a common-sense operational tactic but often pushed to the back burner behind other priorities. Now is the time to move it to the front burner and turn the gas up to a roar. Reach out to balance-due customers to discuss how they are doing and how you can work together to get payment as soon as possible.

• Offer payment alternatives: Consider allowing customers to pay new or existing balances by credit card or offering an early pay discount to incentivize quick payment. The credit card fees or early-pay discount may be a small price to pay for cash in hand.

• Get Cash-up Front: Require prepayment, if you don’t already, preferably by credit card versus a check, particularly if the customer isn’t a proven relationship. If up-front, in-full payment isn’t feasible, request a deposit or retainer. If you’re delivering hard goods, work with your shipper to arrange for Cash on Delivery.

• Tighten your invoicing schedule: Revise your usual invoicing schedule to tighten it up, assuming it is not automatically the same day as shipment. For example, if you usually bill monthly, consider going to weekly.

• Tighten your purchasing approvals: Purchases and payment of vendor invoices may deserve higher scrutiny right now. Revisit your policies and potentially lower approval thresholds.

• Stage and time out payments: Contact and work with your key vendors to arrive at a potential extension of payment terms. Take advantage of early pay discounts if you can. Talk to your banker about debt service options. Talk to your landlord about rent payment options.

• Speaking of your banker: Keep lines of communication open, whether about filing for the current CARES Act programs, your line of credit or managing your debt covenants. Surprising a banker with bad news is sure to backfire.

• Stock up that inventory! Inventory is only as good as the cash it converts to assuming you’re selling it for a profit. But you need to have it. If your demand is predictable, it may be wise to build inventory before the tarriff strategy goes into effect.

• Act decisively: Once decisions are made, act on them in a timely and decisive manner, exercising strong communication skills that are transparent and compassionate to all concerned. Relentless execution of cash management and strategic actions will drive results

With cash as king, this brings us to the queen - the master of your business strategy. Many business owners take the “king” so seriously that any expense that isn’t deemed immediately needed hits the cutting room floor in the effort to conserve cash at all costs. This tendency is natural in the face of fear and may be, depending on the circumstance, prudent. However, as the Harvard Business Review study points out, this approach comes with serious downsides come the eventual recovery.

Key strategic elements throughout the organization should be open to discovery, conversation and revamping, including:

• Staying in the game: If possible, resist the urge to severely cut sales, marketing and advertising. Now is not the time to disengage from building relationships with your customers and prospects. In fact, now may be the time to invest. For example, use personal contact, social media, mailers, videos, etc. as low-cost channels for communication. If resources are available, invest in advertising and other campaigns to stay connected.

• Hone the messaging: With customers white knuckling their spending, make sure you’ve honed your message about how you help them address their new problems in a thought-provoking manner. Customers still have needs, although they may be changing their priorities. Focus on identifying what their new challenges are, when they will surface, and how you can position yourself to meet those needs through creative, thoughtful communication.

• Invest in research & development (R&D): Business cycles come and go, as will this one. Similar to staying in the game, stay closely attuned to changing needs and invest in the R&D to position your company for a strong recovery. If there are projects already in the pipeline, reassess its urgency, potential for redeployment and efficacy in this new world before simply pulling the plug in the name of cash conservation.

• Protect your workforce: There isn’t a business leader around that isn’t struggling with finding enough talent. Engage your team in the problem solving and the solutions. They will have ideas you haven’t thought of regarding staffing, operations, innovations, and customer needs. Plan out for alternative staffing strategies for when you start seeing shortages.

• Pivot Plays: Many businesses can pivot their operations to meet the emerging changes in the economic dynamics. Is yours one of them? Are there operational improvements that you can make to gain efficiencies and competitive advantage? Be open to looking everywhere, even the sacred cows.

• Manage your supply chain: If you haven’t already, start vetting your current key vendors and how they are doing through this. Begin researching alternatives to them as their supply chain may also be disrupted causing you with domino-effect margin compression. Strategically rethink individual products and whether just-in-time strategies and systems should be adjusted in favor of safety stocks, substitution or other product line strategies.

• Maintain strong financial and information reporting: Confirm that your systems are current, timely and accurate. If they aren’t, fix it. Review your operating metrics and verify if they still reflect what should be measured and tracked.

While the above lists are not exhaustive, hopefully they provide food for thought and discussion. Let me know what you think and what questions you have. We can do this.

Stay safe, y’all.

Martha