You banked with SVB and your cash is stuck, what now? (updated)
See our follow-up to this post regarding the Fed backstopping all depositors.
Many startup founders walked away from work on Friday, March 10th, 2023 with lots of questions that have uncertain answers.
How much of my cash am I going to be able to collect?
When am I going to be able to access my funds?
How am I going to continue to operate my business with what little cash I have left?
You may be feeling frustrated and uncertain, with little idea of what to do. This is an incredibly unusual circumstance, and our team has been focused on helping our startup clients navigate this uncertainty. At Ballast, we are obsessed with helping small businesses succeed, so we wanted to share with the startup community some of the tactics we've employed with our clients over the last 48 hours. The following are things you can do TODAY to manage what may look like a dire situation. Speed is of the essence with these things as this is a rapidly developing situation.
Set up a new bank account ASAP. In addition to your lingering SVB account, you should probably have at least 2 other banking relationships. We recommend one large bank and one community bank for diversification. Overweight funds toward the big bank – it is likely that the big 4 (e.g. JPMorgan Chase, Bank of America, Wells Fargo, and Citibank) pose less risk in this environment. Each bank that you have deposits with will have depositors insurance on up to $250k, so the more banks you have accounts with, the more FDIC insurance coverage you will ultimately have.
Set up wire and ACH templates to easily allow the transfer of funds between the new bank accounts. Doing this will ensure that you are able to act quickly should one bank show strain and pose a risk.
Move all of your systems that push or pull cash in and out of SVB into the new bank account. Don't add fuel to the fire by having more customer deposits be sent to the bank you can't access funds from. Change your payroll and bill pay services to move the default bank account to the new bank. Examples of systems that need to be changed over – for inbound cash: merchant account (QBO), Stripe, Paypal, customer deposits; for outbound cash: credit card payments, payroll, ACH autodrafts.
Build a financial forecast that gives you a monthly forecasted P&L, Balance Sheet and Cash Flow statement. Forecast it at least 9-15 months. Click here to learn more about how we build models for our clients or contact us for model templates or assistance. Your model should be simple and excel-driven. You should be able to quickly adjust your forecasted revenue, costs and headcount and see the impact to your cash burn on a monthly basis. This is your 'long view' of cash. Update this at least monthly and update your forecasted months with ‘historicals’ when you close months out to better inform your forecast.
Build a 'short-term view of cash’ by creating a schedule that represents your current cash balances (what you have left at SVB and what cash you have at other accounts), and the next 45 days of expect cash receipts from customers and cash outflows to vendors and payroll. This is more detailed and granular than the monthly forecast. Update this daily/weekly with your accounting and finance team.
Understand your cash burn and your cash runway using the monthly forecast and short-term view of cash. These are your newest top priority KPIs. Everything you do should attempt to reduce cash burn and increase cash runway. Instill it in your team - it is your new culture.
Address your team - be clear and honest with them about what is happening and what steps you intend to put in place to sustain what cash you have.
Send a memo to your investors updating them on the situation and what steps you have and plan to take. As appropriate, share the forecast with your investors and discuss any special temporary financing they may be able to provide if your forecast indicates a cash shortfall. Keep your investors regularly updated on performance and needs.
Review your suppliers and other vendors. What are your agreed-upon payment terms? Which ones must you prioritize (the show stops if they don't get paid on time)? Which ones can you extend? Which ones are you willing to withhold payments? Go to the point where you are uncomfortably delaying vendor payments, then go a little further. You can reward your vendors on the back end when you make it through this.
Figure out which of your customers bank with SVB. You can review paper checks from your customers or can see bank-info in deposit memos in online banking. If those don’t work, lob in a friendly call to see how things are going to get a read on their situation. If they banked with them, assume they are in the same situation as you; do not expect to be paid quickly (or at all) by them. Adjust your forecast and sales approach accordingly.
Take a hard look at your team roster. Who is essential to current operations that drive cash flow? If an employee is too far removed from the near-term collection of cash, consider furloughs or terminations of these employees. You likely do not have enough cash runway to spend more funds on product development or platform features. This will be painful but inaction will likely be much worse.
Consider implementing deferred compensation and/or temporary pay reductions. Your employees are valuable, but they are likely well aware of the situation both with your company and the broader market, and hopefully, they will be willing to share in the short-term pain. The CEO/founder and the senior team should take the largest cuts and deferral to show leadership by example.
Get tighter than you could ever have imagined on non-people spending. All new purchase orders and expenses need to be approved by the CEO and/or CFO. Perform a vendor-spend analysis to review what monthly subscriptions can be cut. Cancel your credit card for auto-recurring subscriptions that you do not want to pay for anymore. If you are under contract with a vendor, use this as a valid reason why you must terminate the agreement.
Ask your landlord for free rent or forbearance. COVID tested the limitations of what landlords were willing to do to help their tenants in need. With rental rates and utilization of office space remaining at challenging lows, your landlord will hopefully be accommodative to keep you around in the future.
Find out how to get your $250k cash and research daily when and how you will collect advanced dividends related to your receivership certificate for the remaining amount of uninsured deposits. Contact the FDIC at 866-799-0959.
Stay on top of the news. Bank runs happen as a result of fear reaching panic-levels, and fear is contagious.
We hope you find this list of tips helpful. We care deeply about small business owners and their companies and want to see as many of them weather this storm. That said, we know that many will not. Implementing these strategies of financial fitness may create short-term pain, but could ensure your business remains healthy in the long-run.
