1) Don’t run your business out of the checkbook
Particularly in an economic downturn where as was discussed above – cash might seem adequate for a season as the firm’s slow down in sales liquidates receivables and inventory that will not be replaced in the short term. Get your business model restructured to the new economic reality- don’t wait until you are out of cash to restructure, it will be too late by then
2) Reduce risk to get and keep capital
The key to approaching the capital markets is to be radically objective about the risks in your business and act to mitigate them. In fact the key to raising money is to reduce the real and perceived risks associated with your business.
I recognize that as an entrepreneur you are wired to examine your business through the lens of its potential. What you have to understand is the providers of capital to your business view it through the lens of your business associated risks i.e. its profitability, its customer concentration, its reliance on your personal efforts and talents.
The key to approaching the capital markets, the banks, etc., is for you to in a radically objective manner identify the key real and perceived risks in your business and start acting to mitigate them.
3) Communicate risks and problems to the capital markets early and often
The capital markets will work with you through problems but they abhor surprises. I recognize that as an entrepreneurial leader you would not have a business today if you were not unique in your ability to land on your feet in a crisis, many times before most of the constituencies that rely on the business- your employees, your customers, your suppliers and your bank even recognized there was a problem.
However in the current capital constrained environment and in an economic downturn it is imperative that your command and control systems are capturing early warning signals and that you are communicating them early and often to all of the business’ constituencies including your bank – affectively reducing real and perceived risk in the business.
4) Understand that liquidity is more important than the cost of capital
Move debt to higher cost – lower covenant structures to ensure that you have liquidity for the business moving ahead. Patting yourself on the back for a prime rate loan when the covenants of that loan will be busted in 6 months because of your business requirements will do nothing to help you survive and thrive in a downturn.