Zain Jaffer is the founder and president of Zain Ventures, a family office that invests in real estate and proptech.
Given the recent bank failures, the high debt interest rates, an economic downturn, and any upcoming financial fiascos that could be lurking in the future, business leaders may be facing some sleepless nights. In particular, businesses need to control costs, maintain continuous revenue streams, and ensure that their treasury does not run out of cash for payroll and other expenses.
The debt ceiling was an example of a crisis from left field that could have wreaked havoc on the economy had it not been addressed. However, there is still the question of whether inflation and high interest rates will continue to take their toll on American businesses.
Doing Away With Frills
Corporate frills probably need to go if these issues are impacting your business. If your practice in the past was to provide fresh sushi and sashimi at the company canteen, maybe those unnecessary luxuries need to go.
There is an often-told story about Herb Kelleher, the late former CEO of Southwest Airlines, who positioned his company to be the low-fare airline in the industry. Kelleher reportedly said, ”We are the low-fare airline. Once you understand this fact, you can make any decision about the company’s future as well as I can.” Then, as the story goes, he posed a question to someone about what they would do if someone from marketing suggested serving chicken Caesar salad on a flight, although the airline only served peanuts.
He suggested asking, “Will adding a chicken salad to the menu … make us the low-fare airline from Houston to Las Vegas? Because if it doesn’t then we are not serving any [expletive] chicken salad.”
Improving Productivity
Companies these days need to be frugal without impacting employee morale and even become more productive despite these hard times. Being productive might mean using AI in the workplace to enhance output, but it could also lay the groundwork for totally replacing the need for a person to do a given task.
Additionally, if you notice that many employees are spending most of their time in meetings in which they are not really needed, and this is taking time away from their work, then they should be excused from those meetings. There are other things that they do in their workday that might not be necessary too.
Financial Management
When it comes to revenues, if your business is extremely impacted by discretionary spending due to the economy, then perhaps you need to find a way to decorrelate your business and find alternate revenue streams that are unaffected by economic conditions. You can also find other things that your employees can do to generate revenue. Otherwise, there may be no alternative but to lay off some staff if the outlook for your product or service is not good.
At my family office, we are also looking at alternative hedges seriously given that commercial real estate, our line of business, is undergoing very rocky times. In my experience, most company treasuries tend to operate in cash, both actual U.S. dollars and in short-term U.S. treasuries that are currently yielding between 4% and 5.5%. With the recent and potential future bank runs, some companies may consider increasing their ratio of short-term treasuries relative to cash.
Aside from cash, my company is seriously considering holding some amount of gold or commodities that people need. Precious metals also have industrial applications, so these are not just stores of value. These do not pay dividends, but these are not “promises to pay” like stocks and bonds. If your company is considering similar options, your corporate treasurer should do their own research to determine whether assets like gold and silver that are tradeable would be good options for their business.
Right now we are caught in a unique historical situation where debt and energy are becoming expensive, consumer confidence in disposable income levels recently fell, and businesses are gearing up for potential rocky times ahead.
Preparing for the rough seas ahead can make the difference between making it through and having to close up shop. Being prepared means staying alive.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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