When Tara Kelly expanded her business operations to the U.S. back in 2013, it didn’t cause her to sink into debt. Instead, she dipped into her cash reserve—a sizable cushion that let her open a physical office in Chicago and employ a handful of health-insured full-time staff. “We knew it was going to be tight, but we wanted to do it ourselves and not take on any debt,” says Kelly, president and CEO of Splice Software, a Calgary-based provider of personalized human voice messages.
Cash flow is the lifeblood of any business—and also a major killer. According to a 2018 report by BDC, the main perceived obstacles to seizing opportunities are of financial nature, especially for smaller companies. Being cash-poor puts businesses at risk of missing their most basic obligations, such as payroll, rent and loan payments. And that makes it impossible to grow. Splice’s rule of maintaining a six-month reserve is just one way it keeps its coffers full.
To keep cash coming in, Splice is no-nonsense about collecting the money it’s owed. The firm requires a significant deposit on all pilot projects and requests payment within 30 days. It’s an aggressive approach, and one that works best when a business can clearly quantify its value to customers, says Becky Reuber, a professor of strategic management at the University of Toronto’s Rotman School of Management.
Given Splice’s shrewd attention to its balance sheet, it should come as no surprise that its reserve cash is only to be used in exceptional circumstances—and even then, Kelly is adamant about quickly replenishing the fund. For instance, the opening of Splice’s Chicago location slashed the reserve in half, so Kelly promptly informed her employees they needed to drive up revenues and save wherever possible.
If only governments did the same?
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