When the Cash Gets Tight: A Founder’s Reality (Part 2)

Communication and Options)

An important and vexing leadership challenge during a cash shortfall is communication. Who do you tell? How much information do you share, and when do you share it?

Many founders hesitate to talk openly about financial pressure. They worry that employees will panic, that investors will lose confidence, or that customers will sense weakness. So they delay difficult conversations.

Unfortunately, the longer you wait, the deeper the hole you dig for yourself.

Depending on the size of your organization, there may be layers of staff that do not need to know everything. However, your leadership team must understand the reality of the situation. When people understand the constraints, they often become far more creative in helping solve the problem.

The same goes for your board or investors. The longer you delay talking with them, the more difficult the conversation becomes later, as uncomfortable as it may be in the moment. I’m a big believer in sharing bad news early and asking your investors or board members for advice. At these moments of stress, you also learn the true nature of these relationships. Are they there to help you, or are they there to make you feel as if you have failed?

Finally, there is the uncomfortable reality that when cash is tight, you are often negotiating from a position of weakness. Whether you are talking to investors, vendors, lenders, or potential customers, the other side may sense that you need the deal more than they do. That can make negotiations uncomfortable.

But real leadership means having multiple options mapped out. One technique that I have found works well is to offer your best customers a discount for prepayment. In many cases, customers are willing to commit to a longer-term agreement in exchange for a meaningful discount. If you need the cash, this can be an effective way to improve short-term liquidity.

Unfortunately, most founders will experience at least one serious cash scare during the life of their company. The companies that get through these situations well are the ones whose leaders recognize the signals early, communicate honestly, and make difficult decisions before the situation becomes irreversible.

Cash crises test leadership like nothing else.