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How Businesses Can Solve a Liquidity Squeeze Holistically

How Businesses Can Solve a Liquidity Squeeze Holistically
Photo Courtesy: Mitja Sadar

By: Joshua Finley

It doesn’t matter if you’ve been in business for one year or one thousand years; businesses of all sizes face liquidity challenges at various stages of their growth. Whether due to external shocks or internal mismanagement, maintaining sufficient cash flow can be a daunting task for many. Mitja Sadar, a seasoned financier and board advisor to various companies, has extensive experience in addressing liquidity issues and believes that no matter the situation, many companies can address their cash flow problems using a holistic approach. In a business landscape that often defaults to traditional methods like raising debt or equity, companies should consider a spectrum of solutions that will solve their money problem while setting their business up for future success. 

Bringing In Fresh Money

“The immediate response of many businesses to a liquidity crunch is to seek external funding… while this is often a necessary step, it’s important to know what you’re getting into…” While managing a liquidity crunch at Grover in 2020, Sadar orchestrated a combination of venture debt and equity to extend the company’s runway. This allowed Grover to close its equity round under less pressure, achieving a better valuation while also improving its liquidity. While it seems simple, Sader has seen too many companies make the wrong decision when determining whether to take on debt or bring in equity partners. Here’s a simple breakdown of the two.

  • Equity: Involves giving up a stake in the company in exchange for capital. It’s often expensive but can be the right move for companies aiming for long-term growth without the pressure of repayment.
  • Debt: This includes options like bank loans, venture debt, or receivables financing. While it must be repaid, debt can effectively bridge short-term gaps without diluting ownership.

Sadar stresses the importance of assessing the company’s stage before determining the ideal option. Early-stage startups may have limited options and rely primarily on equity. However, as businesses mature, they unlock a broader spectrum of tools, allowing them to combine debt and equity for optimal outcomes strategically.

Raising Profitability as a Liquidity Lever

One of the many overlooked solutions is enhancing profitability. This involves two complementary strategies:

  • Increasing Revenue Without Proportionate Cost Growth: Companies can focus on scaling their sales while maintaining or modestly increasing their expenses. This boosts net profits, which can then be reinvested.
  • Reducing Costs: A disciplined review of expenditure lines can uncover significant savings. For example, during the onset of the COVID-19 pandemic, Sadar implemented a cost committee at Grover. The team scrutinized every expense, cutting non-essential costs while identifying growth initiatives that delivered high returns in a very volatile market.

These measures improve immediate cash flow and strengthen the business’s financial health, making it more resilient to future shocks.

Working Capital Optimization

Perhaps an underutilized lever in liquidity management is working capital optimization. Sadar believes that renegotiating payment terms can be one of the simplest ways a company can unlock substantial cash without raising funds or cutting costs.

  • Customer Payments: Encouraging customers to pay earlier can accelerate cash inflows.
  • Supplier Terms: Negotiating longer payment terms with suppliers extends the time frame for cash outflows.

As Sadar highlights, even a simple renegotiation can have outsized effects. At Grover, shifting supplier payments from upfront to 30-day terms freed up substantial money—an invaluable buffer during uncertain times. These temporary measures provide critical breathing room to implement long-term strategies.

Putting It All Together

Liquidity challenges are inevitable but don’t have to be existential threats. By addressing the problem holistically, businesses can weather the storm and emerge stronger. Sadar’s strategic approach—combining fresh capital, profitability improvements, and working capital optimization—provides a practical blueprint for tackling liquidity squeezes head-on. Unlike specialists who often default to their area of expertise—equity, debt, or cost-cutting—Sadar evaluates the full range of options to recommend what’s genuinely great for the business.“I don’t bring a one-size-fits-all solution,” he explains. “Instead, I analyze each business’s unique circumstances, laying out each option’s advantages and disadvantages. Ultimately, the business owners make the call, but I help them navigate the complexities to choose the right path.”

For more insight from Sadar on raising capital for startups and midsize companies, you can visit his website or follow him on LinkedIn.

Disclaimer: The content of this article is intended for informational purposes only and does not constitute financial advice. While the strategies and insights shared are based on Mitja Sadar’s experience, they may not be applicable to all businesses or circumstances. Readers should seek advice from a qualified financial professional before making any decisions regarding liquidity management, capital raising, or other financial matters. 

Published by Charlie N.

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