Cash Flow Strategies During Distress — Securing your Business’s Financials

There’s an old saying in business–cash is king. And in times of distress, this could not be more true. After the financial crisis hit in 2008, business owners quickly found themselves struggling to meet the day-to-day cash demands of operating their businesses. According to a study by the JPMorgan Chase Institute, on average, companies with fewer than 500 employees have less than a month of cash reserves. Smaller Main Street-type businesses often have just a couple of weeks’ worth of cash to keep running.  

As the economic impact of inflation, supply chain disruption, and interest rate hikes continues to develop, business owners are already feeling pressure on their cash reserves. Many will find themselves faced with difficult decisions. Can I pay my suppliers? Can I make payroll this week? Can I afford to retire? 

Even during a mild recession, businesses may struggle to manage cash flow. Consider options and strategies sooner rather than later to give your business breathing room.  

• Monitor your spending and have a plan: Look at every expense. Identify areas where costs can be reduced or eliminated.  Ensure that you are setting realistic budget targets and tracking progress against these targets.  

• Contact your lenders: Be proactive. Call your financial institution and explore refinancing, deferring payments, or other tools that may be relevant to your situation.   

• Negotiate terms with your suppliers: Best advice – keep close contact with your vendors. If your business is suffering a shortfall of cash and you have a strong relationship with a supplier, you can consider negotiating your short-term trade payable into a note payable.  

• Non-bank lenders: To be clear, we are not talking about the Tony Soprano-like guy on the corner. Following the 2008 financial crisis, the level of private debt has grown tremendously, creating alternative solutions for those who may not qualify for traditional loans or need access to larger amounts of capital. 

While economic downturns can be challenging, with some preparation and a plan, you are likely to find yourself more likely to succeed in the long run.  

For most owners, their business represents the most significant piece of their retirement portfolio. Ensuring a transaction or transition that helps achieve these financial goals is crucial to safeguarding retirement plans. If you’re considering selling or exiting your business in the next three-to-five years, keep an eye on quarterly M&A reports and begin developing a succession plan.  

Don’t let a complex economic landscape prevent you from achieving your goals. Our experience with the many stages of a business’s life helps us keep the big picture in mind for you throughout our advising process. The Aldrich Capital Advisors team is here to help you manage your company’s financial future.  

If you’d like to discuss your business’s cash flow, reach out to your Aldrich Advisor today.