It seems like every day, there’s a new economic forecast that causes concern. Maybe you have that feeling in your gut that things might not be going as well as they could. New Direction Capital can help you navigate your financial challenges and inject some confidence back into your decision-making. Take the first step and schedule a call.
Meanwhile, here are some of the trends we’re currently seeing that you need to know about.
Financing is not as easy as it used to be. VCs are holding off investing in traditional business lines these days. The new money seems to be going to AI and Generative AI projects, which are popping up everywhere. Whether these will turn out to be good investments or not remains to be seen, but money elsewhere is tight.
While the Federal Reserve has been aggressively raising interest rates (and keeping them high) to fight inflation, the cost of borrowing increases — making it more challenging (and expensive) to fund operations and get loans. Higher rates also generally slow lending. Lenders tighten standards to avoid risky loans or attach more stringent reporting or conditions to loans. The higher cost of capital can squeeze returns.
Managing Cash Flow
With access to funding more challenging and expensive, effectively managing cash flow becomes more critical. Businesses need to take a fresh look at their short-term and long-term cash needs along with reserves in light of changing economic conditions.
It’s key to understand your liability. For example, what happens to your cash flow if your customer suddenly starts slowing down payments or goes past due? Do you have the appropriate reserves to cover operations until you get paid? This can be especially challenging for small and medium-sized businesses (SMBs). One survey showed that 46% of SMBs report that late pays have increased in the past year.
Analysts are split on whether we’re heading for an economic downturn, going to see a slight rise, or we’re in for a relatively flat economy in the first half of 2024. While concerns about recession are easing slightly among many analysts, consumer confidence continues to wane. If a recession comes, cash is king and can help you get to the front of the line with suppliers and lenders.
Higher Returns for Reserves
If you do have cash reserves, it’s time to take a look at how they are invested. There are much higher returns available on assets that are generally considered safer. Moving reserves into high-interest money market accounts or Treasury products can produce greater returns than in years past.
Regardless of your current financial situation, business leaders need to be laser-focused on strategy in the year ahead. This includes a careful analysis of your entire financial picture from top to bottom, ensuring investments align with strategic goals.
Many companies have already started to slim down staffing or slow hiring, concerned about customer demand and continued inflation. You may or may not need to do the same, but you should have plans in place if you do need to downsize. Conversely, you should also have a plan in place to take advantage of new opportunities that arise during uncertain economic times.
New Direction Capital has the expertise to help you manage and grow your business regardless of economic conditions. Our virtual CFOs can help you raise capital, increase business value, and plan for sustainable growth.
If you’re feeling overwhelmed or worried about where your business is heading, struggling to manage the financial complexities, or can’t justify hiring a CFO full-time, talk to New Direction Capital about a virtual CFO for your business.