Building Resilience and Diversified Financing Channels: Key Strategies for Enterprises to Navigate Economic Storms
Amid heightened macroeconomic and financial market volatility, business owners and financial executives are broadly concerned about the risks of bank failures or disruptions to a single financing channel. Pipe CEO Luke Voiles points out that while macro storms cannot be predicted, enterprises can build microeconomic resilience by improving operational efficiency and proactively diversifying capital sources. This article elaborates on how enterprises can safely navigate crises amid uncertainty, focusing on two dimensions—operational efficiency optimization and working capital acquisition—combined with specific tool examples.
Luke Voiles is the CEO of Pipe, a Miami-based capital platform. The views expressed in this article are solely those of the author.
The current uncertainty in the economy and financial markets is a deep concern for many business owners, CEOs, and CFOs. While taking proactive measures in the face of an unpredictable macro environment is crucial, the high level of unpredictability also makes it challenging.
What would happen if your primary bank failed, or if the financial institution you rely on was affected by the collapse of its partner bank? What if your sole source of financing suddenly dried up and you lacked the liquidity needed to keep operating? These are the questions that often keep business owners up at night.
However, the good news is this: while you cannot predict the next macroeconomic 'storm,' you can prepare for various shocks by building economic resilience at the micro level. When the market declines or a major event occurs, you will be better equipped to safely navigate through the turbulent times.
Operational Efficiency: The First Pillar of Resilience
The recent turmoil in the banking sector and the broader economy has certainly unsettled business owners and executives. During the most challenging periods, we spoke with hundreds of entrepreneurs and operators. Although the problems they face are not easy to solve, solutions can typically be found in two directions.
The first consideration in building a business that can withstand economic shocks is enhancing resilience through operational efficiency. When you need to meet payroll, maintain inventory, or keep the lights on, cash is king. Your cash strength during turbulent times depends on two factors: the amount of cash coming in and your future cash flow position. The more operationally efficient you are, the faster you can build up a cash buffer; and during difficult periods, that buffer will also last longer.
The easiest way to boost resilience is to leverage readily available software tools to streamline operations and increase efficiency. You may already be using ERP systems like QuickBooks or Netsuite, but your industry likely has more specialized tools that can help you achieve smoother operations on the operational side.
This is like building a more efficient engine—you can travel farther on a full tank of gas. This is especially important when you don't know how far away the next gas station is, or when fuel prices are high.
For example, a pest control company can use WorkWave to streamline operations and optimize costs while also using it to handle POS payments. Restaurants can achieve similar functionality with Lavu or SpotOn, optimizing scheduling, inventory, and ordering while managing payments. E-commerce businesses can use tools like Nuvei to gain deeper insights into operational efficiency. In all these cases, better tools and data help businesses build stronger resilience.
Ultimately, the more sustainable your business operations are, the less risk you face during market downturns.
Access to Working Capital: The Second Pillar
On the other side of the equation, the ability to access working capital is critical during difficult times. If operational efficiency is a more fuel-efficient engine, then access to capital is the spare fuel can in the trunk and the nearby gas station.
Rushing to find new sources of funding only when problems arise often leads to disastrous outcomes. Therefore, securing access to capital in advance is crucial. This is especially true for smaller businesses—they may lack the clout to knock on the doors of financial institutions when they urgently need funds.
As with the operational side, technology can play a huge role here. Today, most businesses' relationships with banks are different from what they were 50 years ago or even 10 years ago—in fact, they often have no real relationship at all. Instead of walking into a bank to talk with a familiar relationship manager, businesses try to obtain funding from large national banks, which can easily devolve into an 'elitist' system that shuts out small businesses.
One of Pipe's core beliefs is that data and technology can provide nearly all businesses with unbiased access to capital. The tools you use to run your business and manage customer payments already contain all the data needed to access funding when required. By leveraging this data, businesses can obtain working capital based on their revenue rather than personal credit scores, industry connections, or a long and painful monthly application process.
The takeaway is this: even if you don't run a high-tech business, you likely already have the technology and data to avoid relying on one or two large banks during a crisis. When you need cash to weather the storm, this can make all the difference.