CEO Coach - Orders For The New Economy

Bill Warner Wednesday, October 22, 2008

Credit is flowing slower than tree sap in a New Hampshire winter. The board of directors demand actions to respond to the economic mess and wants everything to happen immediately. Investors want to save cash and get to exit as quickly as possible. New investors are renegotiating their terms or backing away all together. Customers are starting to reprioritize purchases they had previously committed to. Wow, it’s a great day in the life of a CEO.

Let’s take a breath and not panic. Action certainly needs to be taken and it is very much the same thing that a CEO has to do in a turnaround situation:

  • Reassess where you are with your revenue forecast. Talk to your most loyal customers and reassure them that you will be there for them and see where they are on future purchases. Take a hard look at new customer purchasing to verify that purchasing timeframes are still real. Adjust the revenue plan based on this brutally honest near-term view of customer purchases.
  • Tighten the belt on the cost structure of your products and services. It’s time to take cost reduction actions that will provide a short-term yield. Cut personnel that are not essential to the manufacturing of products and to providing services.
  • Take a hard look at expenses looking for ways to save cash on discretionary spending, payment terms to suppliers, lease payment terms, unnecessary personnel and even look at stabilization of salaries. If an expense item is not serving the main mission of the company, question it.
  • The conservation of cash is what this is all about. More drastic actions could include the curtailment of development of future products and getting out of markets and discontinuing customers that are not profitable. Any action like this has to be done in the context of the company’s cash position and a judgment made as to whether there is enough cash in reserve to take the company through these hard times which could last through all of 2009.
  • Rerun the income and expense report, cash flow statement and balance sheet forecasts with the operational changes you have made. Take a hard-nosed look at whether or not you will have enough cash to sustain your business. If not, more cost and expense is going to have to be removed from the business, which might mean you have to change the fundamental strategy of the business. You must get cost and expense in line with your realistic view of the revenue outlook.

You may be faced with the need to raise additional funds to get you through these tough times. Do not go to outside investors without having first done your homework. Bank loans are much harder to get, but if you have a realistic financial outlook and satisfactory past performance, you have a reasonable chance of getting help. If you have angel investors, you need to work closely with them and give them the same brutally honest view of the business and ask for their continuing help with additional funds. If you need to get institutional money (VC’s), you are faced with a tough negotiation.

This is going to be survival of the fittest, requiring much more discipline and focus than ever before. The necessary actions are well known. We have been through this before. The difference will be in the execution of what needs to be done

Filed Under: Angel Investment, Financing a Company, Business Operations, Managing Business Financials



Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.

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