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Cash is King: Contingency Plans in a Downward Economy

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During economic hard times, strategic decision-making and planning are critical to startup success. Executives from Kranz, Brex, and TriNet recently discussed challenges in the current market, and proposed key strategies for long-term success in cash management, HR, and customer retention. To help growing companies mitigate risk and navigate the current evolving situation, they offered the following ten takeaways:

1. Make decisions strategically, ethically, and compliantly

What sets successful small businesses apart is resilience and planning. As decisions begin impacting your team, encourage leadership to think about that impact strategically, while ensuring decisions are made ethically and compliantly. Consult your network, and seek advice from those who have navigated unprecedented situations before. Lean on experience, data, and a moral compass to inform the hard decisions like workforce reduction and business priorities. And remember, there’s no one-size-fits-all solution. 

2. Manage cash flow by addressing past costs and future obligations

The sign of a mature company with better financial infrastructure is if they’re looking not just at what they’ve paid for, but the obligations they’re going to incur in the future. New hire commitments, leases, and other obligated expenses will all impact future viability. Companies need to have a clear picture of the things they’ve already cut checks for, as well as future expenses. Look at incoming cash flow, emerging expenses,  and previously committed spend to inform financial decision-making moving forward.  

3. Rely on data to inform decision-making

Financial data is critical to decision-making. Use cash flow information to decide what commitments you can change, and what commitments you should change, understanding that the two will not always be the same. If you have the luxury of a six-month runway, address how present decisions will affect the company in the long term. Be aware of long-term consequences. If there are processes you intend to change to optimize cash flow in the near term, ensure those won’t negatively impact your business in the long term. The current crisis will end, and you want your company to be as strong and healthy as possible moving forward.

4. Extend runway using creative solutions

Once you have calculated your runway and created a data-based financial framework, consider alternative avenues you can leverage to supplement cash flow. Kranz & Associates recommends finding strategic short-term solutions like negotiating longer payment terms, providing customer discounts, and exploring other ways to generate income. Consider temporary financing through government loans (PPP, Main Street, etc.), and seek out opportunities to proactively consult with financial service providers. Rather than layoffs , examine cost-cutting alternatives like reduced salaries and benefits, adjusted schedules, or part-time flexibility. Find cost savings with R&D tax credits through partners like TaxTaker, and be prepared to have candid conversations with employees about cost-saving measures. 

5. Find ways to retain your greatest investment - your people

Keep in mind that people are a company’s greatest resource. TriNet stresses that companies invest heavily in the attraction, acquisition, training, and retention of employees, so it’s good business to prioritize the workforce during times of crisis. Once you understand your cash position, decide how to retain the valuable talent you’ve recruited and trained. After shifting to an entirely remote workforce almost overnight, Brex focused on the gaps it needed to fill. Individuals in recruiting and office management transitioned to marketing and sales positions to bolster those departments and keep the company moving forward. Redeploying employees to different areas of the workforce is a great way to retain top talent, while investing in the company post-crisis and demonstrating a commitment to the workforce. 

6. Build trust and loyalty through ethical decision-making

Rather than becoming inundated with news stories of layoffs and downsizing, focus instead on reassuring your workforce that they are your top priority.. Many executives have chosen to take pay cuts to offset decreased revenue and retain personnel. Not only does this have a short-term positive impact on cash flow, but it also signals to employees that leadership is willing to make sacrifices during difficult times for the good of the company. After all, your employees have gotten you to this point - they’ll help you get to the next phase, too. 

7. Use scenario-planning models to forecast possible outcomes

Look at different options for what your business will look like post-recession. No one knows how this will end - or when. Deal with uncertainty by probability modeling different scenarios for your company. Find the balance point at which financials (income and expenses) become cash flow neutral, and once that point is established, tweak accordingly. Kranz recommends collaborating with management to develop 10% probability optimistic and pessimistic scenarios, and then coupling that data with projected cash burn and runway to craft a financial plan and forecast. 

8. Consider realigning priorities to reflect current and future circumstances

After forecasting the future, Brex recommends thinking about how previous plans for new products and services might change in terms of value and allocated resources. Be candid in conversations about your company’s drivers, priorities, and capabilities, and assess whether timelines should change to optimize for cash and longevity. Acknowledge that the new corporate landscape now demands Cloud access, remote tools, and a self-motivated and accountable workforce. The lessons we learn now will serve companies in future, but only if companies pivot their business models accordingly. Pivot now, and you’ll be a step ahead on the other side.

9. Identify unique opportunities for growth and improvement

Overcome existing limitations by adapting to the current situation and taking advantage of opportunities when they present themselves. Layoffs are a difficult time for employees, but for companies it can also be a time to recruit top talent. TriNet recently used the opportunity to hire a number of talented people on its Sales team. With fewer people buying non-essentials, the current climate also offers a unique opportunity for fast and critical feedback regarding how people determine product fit and engagement. Brex has optimized its own processes to find out where customers are struggling with its platform. Figuring out how you can improve your product to fit people’s needs will help down the line. Consider offering free trials and self-service so people can try out your platform online, and find ways to enable people to try your product in the absence of face-to-face enterprise meetings. 

10. Remain customer-focused, and pivot to reflect evolving customer needs

Companies that adapt well to crisis environments understand the importance of shifting their message to focus on what  will best support their customers. When the CARES Act was signed, TriNet quickly pivoted its communications to provide valuable information about the latest legislation to its 17,000 small business customers. Moving forward, companies should focus less on emphasizing product features, and more on how those features will benefit their customers. Understanding customers and the market is critical, and can help companies better predict opportunities and challenges they might face in coming weeks or months.

Economic downturns can expose cracks in the foundations of growing companies, so contingency plans are vital to sustained growth. Successful companies are those that quickly shift their focus to cash management and customer service. Strategic and responsible decision-making will ensure companies are prepared for the hard times, so they can not only survive, but continue thriving through them.

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