Are You Recession Ready?
Episode 13 – Financial Management

Recession Ready - Ep 13 Financial Management

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Episode Transcript

Alex Chan | Paul O’Donohue

The question for the day is if you’re a business owner or CEO, are you recession ready? This particular part of the program covers key strategic moves that we can make. And in this particular session, we’re going to be talking about your financial strategy. Now, here to discuss this with us is Paul O’Donohue. SalesStar founder and CEO. Paul, welcome. At some stage when we talk about being recession ready, we’ve got about we’ve got we’ve got to talk about having a good money strategy too don’t we.

Good financial strategy is super important. Alex, we’ve got to really you know, cash is king. We’ve got to make. And it’s oxygen, right. So we need to make sure we’ve got enough oxygen in the business to to get through some tough times.

Yeah. So, look, I want to talk about four things on this particular session today. I want to talk about cash runway. What is that? I want to talk about our debtor days managing that. I want to talk about also keeping in communication with our bankers. And fourthly, what can we do if we just improve things by small increments? So those are the four subjects. Let’s go to the first one, though. Cash runway. Now, look, this is a crucial strategic move if we’re going to be recession ready, isn’t it?

Yeah. And this is one that you should really lean on your financial advisors for. Every business is different. Like, you know, if you’re a business that has a lot of recurring revenue, that’s going to help you get through some some tough economic times. Your cash runway is probably less than traditional business. But but as a rule of thumb, it’s generally 25 working weeks of cash is what you need as a cash runway.

So you’re saying that if we look at our cash on hand, that’s yeah. That’s about half a year. That serious?

Yeah, well, absolutely. We we need to start, if you haven’t done building a war chest, you know, stop reducing expenditure. Don’t spend money unless you have to. You know, expenses, I’ve been told, are like fingernails that just keep growing and growing and growing. So we’ve got to trim them back at some stage, but don’t cut out the things that will help you grow your business.

Okay. So, Paul, that’s really good advice. Use the time that we’ve got right now to try to build up that war chest or that cash on hand, otherwise known as that cash runway. So to our viewers, how long could you last? How much cash do you have to be able to keep your company afloat if sales were to stop tomorrow? Think about that one, Paul. Debtor days. Now, look, this is something that has to be controlled even in a non recessionary climate, but even more so in the current situation, wouldn’t you say?

Well, 100%. We’re always managing debtor days. You know, we’ve got eight practices globally at the moment. It’s one of those key KPIs where I look at how well the practice is running. One of those KPIs is the debtor days some are way better than others. So it’s one of those things you need to have good processes and systems work. But you’ll notice that when your clients get into tougher economic conditions, their their payments generally blow out. You know, that you might end up going from 30 days to 60 days and beyond. And it’s something that you have to manage. Obviously, the cash is better off and your business than with your customers.

Yeah. So let’s take a look at our cash runway. Let’s take a look at our debtor days and try to just wrestle that under control. And the third thing that I wanted to talk about was communication with our bankers. I mean, bankers really appreciate it if you’re finding it tough, don’t they – if you just talk to them.

Well, I think the key is having a great relationship with your bank and being in communication to them all the time. You don’t wait till things get tough to then talk to them because you haven’t built up the relationship and they don’t understand your business. And, you know, here’s one thing I know about banks, Alex. They only want to lend you money when you don’t need it. The irony in it.

Yeah, that is that is the irony. So so I think it’s really important to keep communication with them. And I wouldn’t I would actually recommend that our viewers actually have a proactive talk to them even before things get too tight and just say, hey, look, there’s a recession looming. What is our ability to withstand a recession? Maybe even talk to their accountants about that, too. Like you were saying.

Great strategy.

Yeah. The fourth thing I wanted to talk about, Paul, was just this concept of being able to increase or decrease things in tiny increments, because that can make a massive impact on our bottom line, can’t it?

Yeah, you will. Very fond of the three by three by three rule, Alex Do you want to explain to our viewers what that is?

Yeah, well, the challenge is what if we can increase our revenue by as little as 3% small increment? What if we could increase our margin by as little as 3% small increment? And what if we could reduce our costs by 3%? Now I wonder if our viewers were to do this calculation in their business, what impact what they’d have on the bottom line. That would be a very interesting exercise, wouldn’t it, Paul?

I think it would surprise a lot of people in terms of the impact that it would have.

So small increments can make big changes. So once again, in summary to our viewers, we take a look at our cash runway. How much cash on hand do we have? And Paul gave us the advice. Use the time that you’ve got to try to build that up before recession really slams into us. Manage, manage, manage our debtor days. Talk to our financiers and our accountants about our ability to withstand a recession and think about hatching a plan where you can just increase or decrease things in small increments. Paul, thanks very much for joining us today on this important matter of cash management in a recessionary climate. To our viewers, do you need more help in order to help you to withstand a recession? Well, reach out to a SalesStar High-Performance coach, because we can help. So ask yourself that question. Are you recession ready? If you do, so will be able to help you to answer with a yes. So more videos coming up on the series to help you to be recession ready. Keep on watching and we’ll see you there.

 

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