October 9, 2020

Cash is Still King

Cash is Still King

It’s never been harder, in all the years I’ve been in accounting, for business leaders to make solid strategic plans for the future. Between COVID-19, the election, racial unrest, and everything else that’s making 2020 a year none of us will forget, it seems like the business world becomes more uncertain by the day. And 2020 could get even more unpredictable between now and December 31.

That said, I hope none of you are abandoning your strategic planning. Even if you have to revise your plans between now and the next quarter, you’ll be better off than companies that let their planning fall by the wayside.

The National Center for the Middle Market found recently that companies that say they have an “excellent” or “good” long-term growth strategy projected 5% growth in the next 12 months, compared to 2% for firms as a whole. That’s a pretty dramatic difference. Which camp would you rather be in?

A big reason to stay focused on planning is that it will help you anticipate how much capital you will need in the coming months – and to make sure you’re ready to secure it. Having cash available is the best insurance when things are uncertain, and it keeps you poised to take advantage of new opportunities. The research found that companies confident in their ability to access capital anticipate 6% growth in the next 12 months.

Having enough capital is also important to protect your talent pool. When you have to navigate times like these, it’s critical to have the right people on the bus with you. Planning ahead can help you avoid having to downsize. Good talent is hard to find and even harder to keep. Once the economy recovers, it will be even more essential to have the best people on your team.

Of course, sound strategic plans depend on solid forecasting. That’s not easy right now. For many companies, past financial performance may not be a good indicator of what’s ahead, as they deal with new variables like government regulations including business closures, supply chain constraints, customers who are having financial troubles, and other wild cards.

With cash flow the number one concern for most businesses right now, cash flow forecasting is becoming a top priority. The more you can predict potential shortfalls ahead of time, the better your ability to respond proactively by addressing working capital gaps. That can help you avoid making decisions when you don’t have time to think them through carefully. It can also help you to avoid making late payments that could damage your credit, identify your own late paying customers so you can take action in a timely manner, adjust credit terms with customers if needed, and identify cash on hand that you can put to work for you.

Although forecasting is challenging right now, it doesn’t have to be a complete guessing game. Now is the ideal time to sit down with your Marcum professional or other business advisor and have them run some scenarios with you so you can plan and prepare. Often, the best answer to ongoing uncertainty is to have a Plan A, B, C, D and E…and with the right forecasts, you’ll be better prepared to come up with them.

It’s a lot easier to make plans for your business when the economy is going like gangbusters, but if you think about the history of business and entrepreneurship, some of the greatest progress has come when times were tough. Many of us have already crossed one item from our strategic plans off of our lists – digital transformation – after accomplishing in six months what it might have taken five years to do otherwise.

There’s no telling what kind of innovation we’ll see in the future coming out of the pandemic, but to innovate, you’ve got to plan ahead.

Happy birthday, Tracy!

Stay safe, stay healthy, and remember, we are all in this together.