The Golden Rule Revisited


“He who has the gold, makes the rules…”

Lyndon Forman

The past year has seen some incredible changes in the business landscape. One of the most striking is business credit availability. That’s certainly not an incredible revelation, but I have been constantly amazed at business owners’ inability to effectively manage within the changing conditions.

Eighteen months ago, credit was plentiful. If one bank cut off a line of credit, three more were ready to replace them. The penalties for breaking a covenant were relatively minor: maybe some harsh words from your account manager, more likely renegotiation fees and new covenants. Foreclosure only occurred in the worst cases – and then only as a very last resort.


My evil plans...
Snidely Whiplash

The landscape has changed. Conditions have caused bankers to reprise the role of Snidely Whiplash. Defaults cause brief and pointed discussions: “Payest what thou owest! You have 30 days.” These are very different times.

Here’s an especially harsh example. A business owner’s projections showed that two weeks out, he was going to need a short-term overdraw on his line of credit. Proactively, he called his banker to make the necessary arrangements. She was on vacation and he was put through to her boss, the President of the bank. The President panicked, visited the business the next day, and put them in the workout group the day after that. The business owner went from a vicissitude to major crisis in less than 48 hours!

That’s a drastic example, though not far from other examples we can cite. The change in the financial community has been lightning quick, extreme, and harsh.

More alarming to us is the underreaction to this sea change by most business owners. Everyone we talk to seems to intellectually understand the liquidity issues. Still, very few owners feel the need to implement any change until they hit a bump: a renegotiation, refinancing, or liquidity crunch. Many times it is far too late to recover in these situations. The options are too limited or expensive for the business to survive.

So what’s a forward-looking owner to do in this market? We believe it is critical for every business to increase its visibility and to stay in motion during these times. Reach out to your customers. Energize your networks – both real and virtual. Make cash flow investments in the future. Be proactive and energetic in the marketplace to be ready to take full advantage of the recovery when it comes.

Above all make sure you have good visibility to your key measures and accountability around weekly cash flows. Monthly financial statements are not frequent enough to spot critical trends or establish firm accountability. Monthly reviews allow as much 60 days to pass from when an issue first occurs, is spotted, and then rechecked. Good measures and weekly cash flows reduce that time to less than 14 days – making you much more responsive to changes in the business.

Resist the urge to “Hunker down” and wait out the crisis. Be ready to take advantage of the changes and opportunities that are coming. Keep moving, raise your visibility, and keep “Snidely” away from the back door!


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