Today companies are facing an unprecedented business climate where employees are transitioning to working from home, and companies are shutting down for weeks at a time. This will have a major impact on working capital, which is the lifeblood of organizations, as expenditures will quickly outpace revenue. Even though companies have many assets on their books, they may not be easily converted to cash. This shortfall in working capital could hinder future income producing projects which will, in turn, add more pressure to working capital.
A recent real world example of declining working capital is American Airlines. With the travel ban in place and the reduction in capacity, American Airlines is currently burning $150 million a day. Professional analysts have never modeled in a zero-revenue scenario. To put this in perspective even during the lows of the financial crisis we only saw a decline of 70% in revenue. This zero-revenue scenario is the reason behind the 40% decline in the stock market in a little over 20 trading days, effectively wiping out four years’ worth of gains. The good news is that these types of Black swan events have historically seen a very fast V-shaped recovery. So how do you and your business weather the storm in the meantime?
One thing to consider is if working capital financing makes sense for your business. Do you need to cover a short-term gap? Will the funds you’re looking to borrow cover inventory that will pay for itself in a short period? Traditionally businesses have relied on lines of credit or business loans to ensure they have access to capital. However, trade credit is also something companies should be considering today. Many suppliers are willing to work with their customers when they need to fund a large order, ramp up a new contract, or bridge a short-term need for additional working capital by extending payment terms. Manufacturers also have a wide range of financing programs to help companies during this tumultuous period. These flexible pay per use solutions reduce the amount of initial capital expenditures, creating smaller month to month payments for affordability and convenience.
- Pay as you grow is a program designed to align payments with technology deployments
- Flex on Demand and Data Center Utility are meter usage programs where companies pay for what they consume that scales up and down with workloads
- Technology as a service is a program with no upfront costs and one fixed monthly payment per device to ensure your business has the latest in technology hardware and software.
These are some examples of popular financing programs that are available in the IT industry today which can help you alleviate working capital pressures during this difficult time. There are also pitfalls that need to be avoided when considering financing for your company. If you would like to learn more or have a discussion around financing options, please feel free to reach out at any time. Elysian Technology can help you navigate the financial aspects of capital expenditures to ensure your company has enough working capital.
Steve Wakelin is the newest member of the Elysian Technology sales team. He has over 15 years of professional selling and relationship building experience in the enterprise market. Additionally, Steve has an MBA in finance from Bentley University and 8 years of industry experience. When he is not helping business owners solve complex issues he spends his time golfing, sailing, and raising his two kids.