Luke Voiles is CEO of Miami-based Pipe, a capital platform. Views are the author’s own.
Many business owners, CEOs, and CFOs are understandably worried about navigating unpredictable shifts in today's economy and financial markets. Taking proactive steps is crucial but also challenging given the high degree of unpredictability.
What happens if your bank shuts down, or if your financial institution relies on a failed bank? What if you lose your only funding source and don’t have the liquidity you need to keep operating? Such questions keep business owners up at night.
But there’s good news.
While you can’t always predict the next macroeconomic storm, you can create the microeconomic resilience to weather whatever comes your way. When the markets take a dip or reel from a catastrophic event, you’ll be better able to safely ride out the turbulence.
There’s no doubt that recent turmoil in banking and the broader economy have alarmed business owners and executives. During the worst of it, we spoke with hundreds of entrepreneurs and operators. While their problems weren’t easy to handle, they usually could find solutions in one of two places.
The first thing to consider when building a business that can withstand an economic shock is creating resilience through operational efficiency. Cash is king when you’re trying to make payroll or keep the shelves full and your doors open. Your cash strength in times of turmoil depends on two things: your cash going in and your cash flow moving forward. The more efficiently you run your operations, the more quickly you can build a cash cushion. Also, the longer that cushion will last you when times are tough.
The easiest way to build resilience is by leveraging off-the-shelf tools to streamline operations and enhance efficiency. You may use a tool like QuickBooks or an ERP system like Netsuite, but chances are your industry has more specialized tools you can use to make everything run more smoothly on the operations side.
It’s like building a more efficient engine. You’ll get a lot more miles from a tank of gas, which is a big deal when you don’t know how far it is to the next gas station or when the price of gas is through the roof.
For example, a pest control company can use WorkWave to streamline operations and optimize costs while also using it for POS payment processing. Restaurants can use Lavu or SpotOn in a similar way, handling payments while also streamlining labor, inventory and ordering. E-Commerce businesses can use a tool like Nuvei to get more insight into their operational efficiency and, in all of these cases, build a more resilient business through better tools and data.
Bottom line – the more sustainable your business, the less risk you’ll face when the markets slump.
Access to Working Capital
On the other side of the equation, access to working capital is a game-changer in tough times. If operational efficiency is a more fuel-efficient engine, access to capital is a gas can in the trunk – and a gas station nearby.
Scrambling for a new capital source when something goes wrong is a recipe for disaster. That’s why you need to secure access ahead of time. This is especially true for smaller businesses that may not have the clout to get their foot in the door of a financial institution when they badly need capital.
Just like on the operating side, technology can be a huge help here as well. Most businesses don’t have the same relationship with banks that they did 50 or even 10 years ago. In fact, they don’t really have a relationship at all. Instead of walking in and talking to a banker they know, they’re trying to access capital from a large national bank. That can quickly turn into a meritocracy that leaves small businesses out in the cold.
One of our key beliefs at Pipe is that data and technology can power unbiased access to capital for almost any business. The tools you use to run your business and manage customer payments hold all the data you need to access capital when you need it. By leveraging that data, companies can access working capital based on their revenue instead of their personal credit score, industry relationships or an agonizing, month-long application process.
Bottom line: Even if you don’t run a high-tech company, you probably have the technology and data in place to access working capital without depending on one or two big banks in a crisis. That makes all the difference when you need cash to ride out the storm.