CEO to CEO

Running out of Money

By Robert Sher

It was in “Cabaret” that we heard, “money makes the world go ‘round”. But it is in business where we feel the jolt when the money runs out and the business screeches to a halt. Simultaneously embarrassing and cataclysmic, running out of money is a complete distraction until the problem is solved. This topic, the third in the series, Running out of Money will take you through some common causes and suggest some ways to stay away from this liquidity cliff. To access the entire series written to date, click here.

I know running out of money seems like an obvious problem to avoid, but then why have so many of us (myself included) found ourselves in exactly this sorry state? Running out of money in an ongoing business is like running out of blood in your body. All the systems collapse.

Wrestling with a Rat

Summary: A COO is promoted to CEO just as the company goes public, with a board that has misplaced trust in an advisor that proceeds to manipulate the stock and hold the company hostage for four years. The CEO and her team fight back and keep the life-saving work of the company alive and moving forward until the Department of Justice takes the bad actor off-line. Five key takeaways are at the conclusion of the saga.

Curve Ahead

By Robert Sher

Riding through the night, he sounded the alarm. The Recovery is Coming! The Recovery is Coming! Yes, the alarm. He had seen what was coming. With the recovery would come demands on liquidity like increased inventory, CAPEX, receivables, swelling payrolls and other ramp-up costs. He knew his compatriots’ cash stores and access to capital were depleted, and would not last long. They needed all the warning he could give.

It’s true. The highest percentage of businesses fail at the end of downturns as demand begins to rise. During the early parts of the downturn, they often live off the free cash flow that shrinking businesses (and their shrinking assets) provide. They make payroll and feel like they’re doing well. But their fundamentals are sinking. When they begin growing again, their access to capital is limited and they can’t get the cash they need. The big challenge is liquidity—being able to fund the demands of our balance sheets as our receivables swell, capital expenses rise, inventory requirements rise, and in the case of many internet businesses, the environment for heavy online ad campaigns becomes favorable.

Nobody Saves Their Way to Success

Summary: Businesses grow and win because they invest in areas that make them more unique, and more special. They do not succeed because they invest their cash so that they can save overhead.

When a Pricing Haircut Hits Hard

Summary: It was known that a major client contract renewal would come with a significantly reduced price, but it was lower than anticipated. Efforts that were started years earlier to replace the top line declines had not produced results. As EBITDA dropped, the leveraged firm broke loan covenants and investors stepped in to buy time. Over the next two years the firm focused on its core, reducing expenses and increasing sales, and is poised to set new highs. Read about how it all unfolded.

Outlasting Hard Times

Summary: Run any business for long enough and you’ll go through a down cycle. This article identifies some practical tips on preparing your business for hard times, and surviving them when they come.

The Insomnia Factor:When You’re Using Other People’s Money

Summary: Many businesses borrow money or take on investors to grow, but borrowing money carries many implications. The article examines the mindset of the investor, when to borrow, and what to expect when using other people’s funds.

Cash is King!

Summary: Having enough cash on hand to run your business is critical. Too many firms run so lean that they are at risk of shutdown if any large problems arise. The article discusses where cash goes, where it should go, and how to stay in a comfortable range.

Dealing with Banks

Summary: Banks look to lend money to companies with good to great financials. If you’re on the good end of the spectrum, this essay will help you understand how to work with a bank so that they understand you and your businesses complexities.

The Story Matters

Summary: Keeping your lender updated about your business is critical, especially when your financial performance is less than stellar. Understand how banks view loans, some signs that a bank is worried about you, and when to take action.