A Cash Preservation Strategy for Every Business
For businesses today cash isn’t king, it is king, queen, and the Knights of the Round Table combined. Or, as we say in Texas, it is the whole enchilada.
Select your own metaphor, but cash preservation is top of mind for every board member, CEO and CFO right now. The level of uncertainty is off the charts, too, which adds extra incentive for a cash preservation strategy. What a great time to adopt an interim management strategy throughout the organization, especially in marketing and sales!
Let’s look at a typical example, simplified here for brevity.
For 2009 XYZ Corp had planned and budgeted to add two headcount in marketing and sales—a senior marketing person and a senior sales operations person. Both positions were in the same pay grade with a mid-range base salary of $140k. Fully burdened each position would cost XYZ $190k per year; $225k for each position in the first year when recruitment cost was included.
So XYZ was looking at a $450k investment in two key players in 2009. The CEO believed both positions were critical to the company achieving its revenue goals, but that was the problem. Confidence in the revenue target was shaky.
The company needed the two contributors on board ASAP, but frankly the CEO was concerned about making a $450k commitment when it was unclear what the revenue picture was going to be in the second half of 2009. Heck, the first half was foggy enough.
The CEO and CFO weighed their options.
1. Cut the two positions from the budget until revenue stream was more certain.
2. Cut one of the two positions until revenue stream was more certain.
3. Fill both positions and pray.
4. Fill both positions with interim managers.
What would you do? Would you elect options 1 or 2 and effectively fold your tent? What would the opportunity cost be? Would you choose option 3 and swing for the fences even though there was a stiff wind blowing into your face from the outfield?
With option 4 XYZ could fill the two positions and preserve cash. Let’s look at the math.
Assuming tightly scoped and highly prioritized engagements, XYZ could rapidly put seasoned interim managers into both positions for 6 months for about $250k. It’s a sound compromise that would see the highest priority tasks accomplished for 44% less.
A typical contract for each of the interims might look like this: 3 days per week at $1750/day for 6 months. Each interim contract is $126k, or $252k for the pair for the six months.
During the six months the critical aspects of each position will be accomplished, helping XYZ to reach its revenue target, but if business should suddenly worsen requiring staffing cuts the interims can be cut loose without any severance or HR issues.
Furthermore, mid-year the company still has the option of recruiting for FTEs, extending the interim contracts, or living without managers in those positions for the remainder of the year.
The interim management solution gets the job done, keeps XYZ’s options open throughout the year, and preserves $198k in the bank.