Keeping a business afloat in challenging or uncertain economic times is difficult. Unfortunately, there is no single set of rules that will work for all businesses in all industries. Every business is different, and each carries its own risks and rewards.
“These differences make copying another company’s turnaround strategy to the letter unrealistic,” cautions Investopedia. “Still, there are some general strategies business owners can follow to help them stop taking on water and start bailing themselves out.”
While the White House went on an offensive, saying that the U.S. is not in a recession, the Commerce Department’s Bureau of Economic Analysis reported that gross domestic product, the broadest measure of economic activity, fell 0.9 percent in the second quarter. Coming on the heels of a 1.6% contraction in the first quarter, the two straight declines meet the most commonly used definition of a recession.
Nonetheless, let’s look at five strategies that are generally accepted among a wide cross-section of industries, for navigating potential financial distress.
1. Conserve as Much Cash as Possible
Cash is king, and hoarding as much cash as possible is a crucial strategy for a company that needs to pay obligations that cannot be otherwise deferred or paid on credit.
Senior leadership can work with management teams to decide which invoices can be paid, “slow paid,” or not paid at all. Leadership can decide to halt all new corporate purchases, and to determine which current lines of credit can be turned into cash and deposited in the corporate bank accounts.
2. Discuss Options with Advisers
Oftentimes, outside counsel is just what a company needs. This does not mean exploring options to sell the company, but advisers with years of experience in the company’s industry can provide sound advice as to how to maintain stronger operations and how to navigate current turbulence.
Senior leadership should also begin discussions with providers of alternative financing. Transactions can take several months to close, so initiating talks with banks, lenders, private equity investors, strategic investors or even a key rival or supplier can provide several options for a firm trying to navigate financial distress. Senior leadership can always reject offers, but providing options as soon as possible can sometimes provide a beacon of hope.
3. Review Every Contract
Senior leadership can work with the legal team to review all outstanding contracts, especially those that mandate cash payment now or in the future. Termination rights, termination risks, renegotiation rights, personal guarantees and other contract provisions should be closely scrutinized to determine where cash can be conserved — or where the company can seek payments from customers faster or defer payments to suppliers.
Contracts can also include those related to employment. Negotiate hourly rates or benefits with such contractors to find opportunities to conserve cash, or to offer deferred compensation.
4. Aggressively Cut Costs
Cost cutting can occur at any point in the business cycle, but becomes more acute during times of financial distress. The most expensive cost is usually employees — though mass layoffs as a way to aggressively cut costs are not always the most prudent option. For many businesses, the product is the service delivered by employees; without employees, service will be cut or eliminated, frustrating customers and lowering revenues.
Businesses can find ways to cut costs by negotiating subscriptions or fees, especially with enterprise software or corporate services. Leases can be negotiated at lower rates, and non-core assets, especially those that require costly maintenance, can be sold.
5. Start Succession Planning
Apart from financial strategies to conserve capital, it’s also important to engage in succession planning should adverse events negatively impact management or senior leadership.
During turbulent times, decisions to remove certain leaders — or leaders leaving of their own volition — will impact those that stay behind. Many workers and managers plan on staying, and how those teams will be managed should there be changes at the top is a concern that needs to be decided. Devising scenarios for potential management shakeups — whether they do or do not occur — will place the organization in a stronger position.
Succession planning is also important for the firm’s customers, who are most likely still loyal to the company’s products and services, regardless of any turmoil that might occur. Succession planning ensures that customers are still taken care of and are driving revenue — the most important activity in business.
The Best Solution for Turbulent Times
Times of financial distress can put a lot of pressure on companies. As they examine contracts and explore opportunities, they need a solid technology partner that can enable them to share documents securely and easily with third parties, often on the fly.
A virtual data room (VDR) offers enterprise-grade security and features that are simple for transaction administrators to deploy and manage and that are the best option for private and secure document access to support a transaction. A VDR needs to be more than simply a cloud document hosting and management platform. Organizations should consider a VDR like CapLinked that has years of experience providing data rooms for a range of sensitive and complex transactions and situations.
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Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, Jake covers such topics as security, mobility, e-commerce, and IoT.
Investopedia – Simple Ways to Keep Your Business Going in Hard Times