The 3 Essentials for Managing Cash Flow
Silicon Valley Bank, the state of the capital markets, and recessionary fears have companies retrenching to prepare for navigating the current headwinds and emerge stronger. For many, this means making difficult decisions on how to conserve cash and extend their cash runway. We’ve received a steady stream of inquiries from clients requesting help understanding the levers they can pull and the impact of different scenarios:
- How can we reduce our burn to $XXX per month?
- What happens if our new sales are 50%, 25%, or 0% of projections? What does this mean for cash?
- How long will our cash last at our current burn? What are our options for extending this to six, nine, or more months?
- What amount of bridging capital do we need to manage through this year until capital markets are more favorable?
- What is the impact of eliminating two, five, or more positions?
1. Face Reality
At PlusPoint, we live by a motto that is part of our core values– See it, Own it, Solve it, Do it. During times like these, I am encouraged when clients face the realities of the current market, own their responsibilities, and recognize it is upon them to find and implement solutions. They aren’t ignoring the problem, waiting to see what happens, or expecting someone to come in and solve the problems for them. As hard as it is, teams are lucky to have leaders facing reality, confronting fear, and choosing to face the situation head-on in solution mode.
2. Create a Sound Operating Plan
A well-thought-out plan, while never perfect, serves many purposes – most importantly, a decision-making tool. Building detailed assumption-based financial operating plans is essential and eases some of the uncertainty and angst of making crucial decisions. Without a sound operational plan, leaders often lack the ability to understand the financial implications of different scenarios. They cannot make the necessary decisions to confidently navigate their organizations through a crisis or challenging times like these. Of course, even during good times, a sound financial model is imperative to ensure you are making the best decisions to maximize your business results.
3. Make the Numbers an Intelligent Asset
For the companies we work with, the answer to the financial impacts of different scenarios was as straightforward as running them through the plan. Answers were available quickly, sometimes within minutes, and the information they needed to communicate to their stakeholders was at their fingertips. And while there are many other factors to consider about their difficult decisions, they have the financial intelligence to understand the financial implications and are able to identify, plan for, and resolve these types of major hurdles.
We have many discussions with clients and prospective clients about the importance of having a robust operating plan, and we hear many reasons why leaders choose not to put effort into planning. The reality is that a robust financial plan brings clarity by focusing conversations on areas of strategic importance and helping you understand how decisions will impact the bottom line. It is an essential tool for business leaders that lets you see the whole picture, taking the fear out of decision-making.
There’s never a wrong time to start planning. At PlusPoint, we focus on helping astute leaders create brilliant companies by providing the financial intelligence they need to make decisions confidently. If you are ready to start or build upon your planning journey, we are here to help.
Have Questions About Managing Your Cash Flow?
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