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With the collapse of Silicon Valley Bank and now First Republic Bank, everyone is asking big questions, specifically:
TGG’s CEO, Matt, weighed in on the current situation and offered some helpful advice for any company in any industry. Here’s what Matt has to say:
Here’s the truth — we should expect more bank failures, a steadily rising federal interest rate, and an overall slowdown in the economy.
The banks are the first domino in a chain that affects everything from commercial real estate to consumer spending habits. This changes everything.
However, your company can stay above water by adapting to the situation and making proactive changes in the coming months.
My advice is simple: don’t be scared, be prepared. Regardless of your industry, expect a major economic impact.
Analyze every aspect of how you do business and see what you can fine-tune and improve. Working with a team like ours can help you stay ahead of the coming waves of financial fallout and fortify your current finance department if needed.
As a result of the banking crisis, lenders are becoming significantly more conservative, making it harder to secure traditional sources of financing.
That means forms of financing are big winners now. As you move your company forward and attempt to scale, ask yourself if private debt and equity make sense. Weigh the pros and cons of any form of financing before pulling the trigger, especially as interest rates continue to rise.
In addition, consider restructuring not just how your company operates, but where. Now is the time to consider buying your building outright (if possible) or considering a switch to fully remote work.
Below our some of our best practical tips for companies navigating the unpredictable post-crash landscape:
We always recommend this key tip to our clients: carefully monitor how long it takes your customers to pay. This metric can be easily monitored by watching the Days-Sales-Outstanding formula.
Some of your customers are going to be looking for ways to raise interest-free loans by paying their vendors slowly — because traditional lending is exceeding 10%. One way you can take advantage of this interest rate environment is to increase the pricing of your products or services to allow customers to pay slower.
When evaluating this opportunity, work with your accounting department to evaluate customer creditworthiness and the correct price points for your products or services. That way, you’ll maximize the return on these additional accounts receivable amounts.
As a rule, we recommend that companies review monthly financial statements as an executive team no later than 15 days after the end of the month.
Most businesses can create processes to close in between five and ten days. It’s essential that you close quickly because the longer you wait, the harder it is to get current, relevant monthly financial statements.
We recommend creating weekly metrics that will be good indicators of monthly financial results. This way, executive teams can make 52 course corrections instead of 12.
Over the last few years, many companies have paid more for employees than they ever have in their operating history.
Quite a few of these new employees were hired with the high base salary they were requesting at the time of the interview.
As an example, we watched one company build their staff to over 100 employees — but they never spent the time to create a compensation plan that aligned with the company’s goals.
They were too focused on getting people in the door.
Now this company is forecasting a downturn for the next 18-24 months. Since they didn’t align compensation and goals at first, they’re now realigning and correcting course when they could have avoided the problem altogether.
The times are changing, and companies need to change, too, if they want to survive. Your team can respond to the current crisis by eliminating unnecessary expenses and adapting your business model if necessary. There’s a way through this — but you’ll need a plan of action.