The 2023 Recessionary Balancing Act - Cash vs. Cash Flow

With the holiday season upon us we are provided an opportunity for much reflection. As with any holiday season one of the highest priorities should be reflecting on our biggest blessings in life. My hope is that as we begin to wrap up a whirlwind 2022 that our time of reflection in connection with our faith and family remain our highest priority.

In the midst of our thankfulness it is also healthy to acknowledge the overwhelming topic that has hit decision makers in every business and members of every household like a ton of bricks over the last several months. Inflation!! It's the invisible yet inescapable tax that is hitting every corner of the global economy and crippling many nations that were thriving less than 12-months ago.

On a recent weekend getaway I was able to read a newly released book titled Selling In A Crisis by the acclaimed author Jeb Blount . The crux of the book centered on having the right mindset to thrive in the midst of turbulent times. The author rightly reminded the reader that "Your prospect only cares about their problems, and in an economic crisis they've got lots of problems." While we may be early in the crisis, conversations regarding cash and cash flow management should be an ongoing conversation in every leadership meeting as budgets are being put in place for the upcoming fiscal year.

Top headlines across nearly every news outlet over the last several weeks have focused on the cost cutting measures including tens of thousands of jobs at many #fortune500 companies. That headline is likely to remain in focus as companies battle the unknown and make every effort to determine the never ending battle of managing cash versus managing cash flow. Growth vs. Cost Reductions. Sales Volume Growth vs. Protecting Profit Margins. Limiting Debt vs. Conserving Cash. The verdict is out...and there is no secret sauce or easy fix for this never-ending dilemma.

The old saying "Cash is King" has never been more true. As the cost to do business continues to increase we each have a responsibility to do our part in both controlling cost and driving new sources of revenue. Companies that are the most diligent at controlling inventory and accounts receivables today will stand tall amongst their competitors on the other side of the macroeconomic challenges that are ahead. Those that have a firm handle on their cash positions at all times will make the most educated and thought out decisions on where additional efficiencies can be made when the lives of employees, vendors, and clients have the potential to be impacted.

As the great author and global advisor Ram Charan articulated it in a recent publication, "At the end of the day, companies don't compete - leaders do. Leadership is not limited to the CEO." This has never been more true and more timely. For an organization to thrive there must be candid and at times uncomfortable conversations between all parties directly or indirectly involved in the cash cycle of a business. This means regular proactive planning meetings that include the C-Suite, the line level management, and financial partners to include but not limited to tax advisors, bankers, CPAs, treasury specialist, investment advisors, etc. The risk of failure is amplified with each missing link that is not included in the equation.

The relationship between the Commercial Banker and the client should never deviate from a commitment to full transparency. This principle is the cornerstone to a healthy symbiotic relationship and any crack in the foundation of that relationship will be exacerbated and create unwanted surprises in the midst of broader economic challenges. The most successful bankers are the biggest allies for their clients and will want to regularly review financial performance as well as pro forma for the upcoming fiscal periods.

Protecting the balance sheet at all cost has been a non-negotiable for as long as Financial Accounting 101 has been taught. The rapid rate of interest rate increases has sent shock waves through the business community and thwarted or at minimum stalled countless new developments and capital improvement projects. Conversely, for the first time since the era leading up to the Great Recession, the interest rate environment is providing financial institutions the opportunity to provide a meaningful return for holding idle cash. That interest rate return has the potential to offset some of the added cost to finance. A thoroughly financial review with a banking partner can help ensure the right balance.

One great thing about broad based economic challenges is that it helps the most focused, diligent, and committed amongst us stand above the rest. The time is now to tweak any areas that need perfecting to ensure that your organization is optimizing cash management as well as cash flow management. The two are not one in the same yet are mutually critical disciplines.

As gifts are being exchanged in the weeks to follow, the best gift that you can provide your organization is the confidence that company leadership and trusted partners are laser focused to ensure that the lifeblood of the business is the highest priority. There are countless resources available to help through the process. Should you need guidance on where to start or just desire to have a second look on your plans please do not hesitate to reach out.