Thomas Arseneau, CPA
Managing Director | Tampa Bay Market Leader
The challenges faced by most companies, as a result of the mostly unforeseen collapse of Silicon Valley Bank (SVB) and now others over the course of the last couple of weeks, are entirely new and unprecedented. For those who were entangled or impacted by prior financial crisis, it is a harsh reminder to always be prepared and not let your guard down. Here are a few simple, actionable recommendations we can all take away.
Silicon Valley Bank, the 16th largest bank in the United States, which touted itself as the “the financial partner of the innovation economy, helping individuals, investors and the world’s most innovative companies achieve their ambitious goals,” is no more. After a “run on the bank,” this financial institution, which was held in high regard, is now under the receivership of the Federal Deposit Insurance Corporation (FDIC) and in the process of having all of its assets sold.
How did this happen? A combination of numerous economic and social factors. For the technical economic analysis related to the impact of deposit inflows and interest rate hikes, see here. For the social factors, you need to merely view the numerous Slack channels, tweets and list serves that blew up instantaneously; a 21st-century marvel of how quickly a “fire” can spread.
As of today, the short and long-term ramifications of recent events remain unknown. But thankfully, with the help of the FDIC, many companies directly and indirectly affected by SVB are being made whole.
As in life or business, it often takes a hard lesson learned to remind us to be prepared for the unthinkable and best position ourselves for the present and future.
Here are a few simple actionable recommendations we can all take away.
Effective and Transparent Communication
Recent events are a strong reminder of the importance of swift, effective, and transparent communication. Open lines of communication with investors, employees, vendors, and advisors are paramount whether or not events directly impact your business. As a leader of an organization or team, it is a leader’s responsibility to keep communication lines open and clear. One of Centri’s core values is responsiveness, which highlights the importance of direct, appropriate, timely internal and external communication, and being an excellent proactive communicator.
Diversification of Funds and Responsibilities
As the old proverb goes, “do not put all your eggs in one basket.” Companies with all their funds tied up at SVB were thrown into sheer panic when they could not meet payroll or execute payments to keep their businesses operational. Cash flow and access to capital are the top priority and mechanisms to running any business. It is important to diversify and have a checking account or open line of credit with more than one financial institution with sufficient reserves or credit lines to meet short-term liquidity needs. Additionally, it is important to have more than one authorized person with access to your accounts. In many instances, the CEO or business owner may be the only individual authorized to wire funds or open new accounts. Having an authorized board member or secondary person is essential if one authorized individual is unavailable. A periodic review of signers and authorized parties should be conducted to ensure that all signature authorities and authorized parties are adequate, current, and authorized by management to be signors. You should ask yourself, could your business run without you?
Compliance and Preparedness
As discussed in a recent LinkedIn post here, many companies, incorporated in Delaware, may have unfortunately been turned away from opening accounts because they did not have an up-to-date certificate of good standing on file. The site for certificates quickly became unavailable and now faces a significant backlog. We would advise companies to keep an active certification with Delaware on a rolling six-month basis. Far too often we see companies running into unknown or unshared compliance-related issues that can cause delays in doing business or missing out on opportunities. These circumstances are avoidable when proactively planned and handled timely.
Cash Flow Risk Management
If you have yet to do so recently, now is a good time to revisit your cash flow risk management policies and procedures. Key components to running a business, especially during a potential downturn, are capital preservation, liquidity, and monitoring of cash flows. It is important to consistently revisit forecasts and burn and track amounts against actual spending. Having a clear picture of your runway and cash flow is imperative at all times to running a successful business. Additionally, you should establish and regularly review all treasury-related risk management policies. For example, monitoring the credit worthiness of your banking deposits and lenders access to capital for lines of credits and liquidity.
How Centri Can Help
Are you prepared for whatever comes your way? Aligning yourself with an advisor you can rely upon and ask for help anytime is a duty you owe to your employees and investors. At Centri, we are dedicated to ensuring you are proactive in implementing and maintaining strategies to manage and grow your business effectively.
Centri can assist in adequately evaluating market conditions, providing a risk scenario plan, risk management assessments, reviews of financial institution credit worthiness, development of concentration of credit risk analysis, and liquidity analysis to verify that management is adequately monitoring cash flow risks. Furthermore, our Powered by Centri team offers strategic advisory solutions focused on your business’s unique challenges and strategic opportunities for planning and growth at every stage. From our part-time controller and fractional CFO services to our outsourced accounting services, we have you covered so you can focus on running your business while we take care of the rest.
Managing Director | Tampa Bay Market Leader
Thomas is the Managing Director and Tampa Bay Market Leader at Centri. He brings over 14 years of experience in planning and executing financial statement, internal control, and compliance audits, in addition to providing technical accounting, financial reporting, and CFO advisory services. At Centri, he provides advisory services to venture capital and private equity portfolio companies in technology, business and professional services, and consumer products.
Managing Director | Outsourced Accounting Practice Leader
Jeffrey is the Managing Director and Outsourced Accounting Practice Leader at Centri. He has over 10 years of experience serving as a trusted advisor to entrepreneurs, startups, investors, C-suite executives, and business owners guiding them through the complex financial landscape. His background in consulting, accounting, and tax offers a unique skill set that adds value to clients focused on accounting, financial management, and controls.