As we head to the last quarter of 2023, Chief Financial Officers (CFOs) of small and medium-sized businesses continue to see higher borrowing costs. Yet, there are mixed signals about this trend, i.e. data that indicates jobs are added to payroll at a greater-than-anticipated clip, increased interest rates for borrowers, etc. Mixed signals make it difficult for business owners and entrepreneurs to plan for upcoming business cycles; but regardless, it is important to forecast financial performance to the extent possible in order to properly manage cash inflows and outflows. 

So how can entrepreneurs increase their credit capacity in an uncertain market?

• • • Communicate Often with Your Banker: To grow your business and ensure flexible financing options, it is vital to have a strong relationship with your bank. If you bank with a large institution, it is even more important to develop a relationship with the local branch manager who is within driving distance of our office. Don’t delay – call your banker and take her out to lunch!
    • Manage Your Spending: As illustrated in our last article, it’s budget and forecast season here at AcceleratingCFO, and we use the fourth quarter as a leading indicator of how the first two quarters of 2024 will likely be for our clients. It is the nature of CFOs to be conservative in general; and when things become more difficult to predict, we tend to become even more conservative. This approach should be checked against growth plans and forecasted performance for the remainder of 2023. 
    • Build Up Your Cash Reserves: It’s always good to have an emergency pile of cash or rainy day fund available in your business — and in life. Having cash available allows you to rely on internal sources of funds instead of external sources such as banks, venture capitalists, and angel investors. It is less costly to use internally generated cash flow; but, it forces management to make tough decisions on resource allocation and cost rationalization. Although cost savings will typically turn to employee headcount, it may also affect other areas such as technology platform roll outs and office space expansion. Tough decisions always have to be made — and they get more difficult when credit markets are behaving the way they are right now. 

Fractional CFOs often get criticized for being tight-fisted with spending or approving their clients expenditures. It is because we, at AcceleratingCFO, believe that cash flow is the blood stream of a business. Without free flowing capital, your business can quickly turn from being very profitable to cash starved. There is a balance between being risk averse and taking calculated risks to maximize rewards — the strategy adapts to the current environment. And in these challenging times, cash is king. 

Take-away: If you do not have a good cash flow model that illustrates the various factors that can hinder or enhance your business, reach out to us at info@acceleratingcfo.com for a free analysis of your cash flow modeling and how it stacks up against our best practices.