Two overlooked strategies for CFOs in a recession
What should CFOs do in this volatile economic environment? What are some belt-tightening measures companies can take that won't stymie growth or hasten the necessity for another funding round?
The good news is that these measures exist. There are practical steps CFOs can take to guide their businesses, ones that can soften the blow of a potential recession, and even facilitate expansion in the face of rough economic headwinds.
Get aggressive with contracts
Before taking more drastic measures, focus on maximizing the value of the agreements and assets a company already has. CFOs should be on the hunt for inefficiencies, rigorously spotting both obvious and unconventional ways to reduce spending.
And the first place that comes up is contracts.
If there is one invariable truth about people in sales, it’s that they are keen to meet their monthly and (especially) quarterly quotas. Too often, CFOs fail to realize the power this gives them when it comes to negotiations. Sales teams are often all too happy to stretch terms or otherwise make them more favorable just to secure that all-important number they want to hit. For CFOs, this is an easy way to eliminate burn and to spend more efficiently.
Better working capital management can significantly improve a fluctuating cash position. Using standard financial reports such as cash flow and runway projections helps to visualize periodic pain points and patterns. With this information in hand, it’s possible to attempt to match inflows with outflows and avoid cash crunches. For both liabilities and assets such as receivables, consider which you might be able to delay—and which your customers might decide to delay—to help you understand the firm’s cash flow risk profile.
If you have the good fortune of having surplus cash, use that to negotiate discounts from suppliers by promising faster or even immediate payment. These discounts are often highly attractive on an annualized percentage basis, and readily available under many contracts as part of the default terms.
Take advantage of R&D tax credits
Permanently extended through the Protecting Americans from Tax Hikes (PATH) Act of 2015, the R&D tax credit can be an invaluable source of savings for small businesses and companies (whether startups or not!) engaged in qualified R&D activities, a fairly broad category including tangible or intangible products, software, patentable inventions, and more.
Some CFOs may not realize that they can write off the cost of their employees in this way. As an almost one-to-one tax credit, this is a highly effective method of boosting revenue and allowing the company to retain productive staff.. Without adequate personnel in place, it can be difficult to do anything beyond tread water as existing relationships suffer, and launching new, innovative ideas becomes almost impossible.
If your company has not already made use of the Employee Retention Tax Credit (ERTC) that applies to many businesses operating during the peak COVID-19 period, we recommend that you look into it as there is a high chance that your small business might qualify. There are, of course, other tax credits as well, but these are often specific to certain industries. Check with your peers to ensure you’re able to take advantage of what’s offered.
Both of the above measures should yield significant savings. But with idle cash comes the responsibility of smart cash management. That’s where Mayfair comes in. We help your cash grow with a market-leading APY of up to 4.42%*. And with Mayfair’s streamlined treasury function, you can optimize your cash management from a single, intuitive dashboard. All of this can be done safely and securely, ensuring your business’ cash is not only working for you, but is also protected.
* For more information on the current annual percentage yield (APY) for Mayfair’s cash account products, please visit getmayfair.com and read our disclaimers and terms of service.
