As a business owner who has planned and prepared your company to survive dips in demand, little could have braced you for the Grand Canyon-sized maw that opened when the coronavirus struck this spring.
The journey back from the challenges of pandemic gloom, for many, has required a type of mettle that we never thought we had. If you’ve tuned in to the two earlier segments of this series, you have understood that the climb back to the rim of the canyon requires a commitment to execution, insights, and empathy, as well as gauging the economic health of your organization.
Even if you have successfully prepared your recovery roadmap, just one barrier threatens to block the way forward – undercapitalization, or, as Heath Beam, Principal at Singular Private Wealth and a member of the Forbes Finance Council sometimes calls it, “miscapitalization.”
Indeed, when we face adversity as we are today, many CEOs discover they don’t have adequate cash reserves, or capital in the right places. This ends up causing CEOs to be painted in a corner – robbing them of the needed flexibility to make decisions out of the necessity of the moment.
“Most businesses in America are undercapitalized,” said Beam, a friend and advisor with whom I consulted in writing this series. “Access to capital is the single biggest challenge that any business has irrespective of its ownership.”
Part of this struggle is self-inflicted – a result of acting like a startup long past the point when the business grows up.
“Most people are getting businesses off the ground on a shoestring, they get it off the ground and they start making money,” noted Beam. “That money comes back to the business owner to fund their lifestyle and such, so most businesses are businesses -- they're just not companies.”
Gaining this more “corporate” mindset requires a commitment to extracting some of that cash from the bloodstream and allocating it as reserves – safely squirreled away for recessions, pandemics, or other unforeseen challenges.
Without reserves, there simply is no path forward. Says Beam: “They do not have the capital, or have it in the right places, to be able to navigate the seas effectively. They find themselves in the ocean in a dinghy, going, ‘Oh, man. How am I going to get out of this?’ And that's usually a direct reflection of the counsel that they have in their lives from a strategic standpoint, a legal standpoint, a tax standpoint, a banking standpoint, insurance investments, etc.”
Though it may be late in the game to take corrective action now, here’s what Heath and I recommend as the appropriate steps toward shoring up your capitalization:
In closing, says Beam: “After you get through this, don't put yourself back in the same position. Get with a group of people that can help you devise a plan for the next time this happens—and oh by the way, it will happen – again and again and again and again.”
“What we're experiencing right now may be a result of a virus, but the reality is that it’s simply capitalist economics. It’s nothing new. We as human beings, with our melodramatic senses, want to think it's new and different and special, but it's not.”
So, get yourself to a place where you can get the right people to the table and let them help you build a more seaworthy boat, so that the next time the oceans get rough, you're not out there again, alone and exposed.