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Summit Insights
Aug, 23

Navigating High Interest Rates in 2023: A Guide for SMBs


As the owner of a small or medium-sized business (SMB), you understand the importance of being prepared for various financial challenges that can arise unexpectedly. One such challenge that has the potential to greatly affect your business's financial health and potentially lead to a cash crunch is the unprecedented surge in high interest rates that we're experiencing in 2023.

As a former banker, I understand the implications of these rates on SMBs' cash flow and financial stability. We used to do sensitivity analysis when underwriting a business’ cash flow. We would add 2-3% to the debt payments to accommodate for any fluctuations that may occur during the life of that loan. Never did we sensitize for a 5% increase in a 3-year span. Over the last 20 years, there has only ever been one other month – May 2006 at 9% – where we have been higher than we are today. It's hard for businesses to manage these high-rate times, especially when they have been low for so long: it became our normal.

In this post, we'll explore the unique challenges posed by high interest rates, and I'll offer valuable suggestions on managing your cash flow during these trying times, and how a Fractional CFO can become a crucial resource for SMBs in navigating this unprecedented high interest rate environment.

Strategies to Help SMBs Manage High Interest Rates

SMBs need effective strategies to manage their cash flow during periods of high interest rates. Fortunately, there are steps you can take to minimize the impact and ensure your business stays afloat. Here are four essential strategies to consider:

1. 13-Week Cash Flow Analysis: Anticipate and Plan

One of the first steps to managing cash flow during high interest rate periods is implementing a 13-week cash flow analysis. Putting together a 13-week cash flow allows you to estimate when cash will be coming in and how much you have to pay bills, debt payments, invest in new things, etc. This will give you clarity and possibly add some strategy around who you pay and when. There are always payments that have to be made and others that you can try to push until the next week.

2. Reduce Accounts Receivable and Increase Accounts Payable: Balance the Scales

Increase your collections efforts from clients to try and generate cash for yourself faster.  By extending payment terms to vendors while maintaining healthy customer relationships, you can improve your cash position. The more you stretch your payables to vendors, the more cash you are keeping for yourself to pay down some of your higher debt loans. If you can reduce principal balances, you will pay less in interest.

3. Inventory Management: Less is More

The more inventory you hold, the more cash you are using. Reduce inventory as much as you can so that you can keep your cash. This is especially important if you use a line of credit to pay for your inventory. This may help in long term inventory management also, which will ultimately increase value of your business.

4. Capital Expenditure Assessment: Strategic Decision-Making

Leverage your 13-week cash flow projection to evaluate your capital expenditure needs. Can you pay for capex out of free cash flow instead of financing it? Or can you push off some of these expenditures until interest rates decrease? If you can not do either of those, make sure you enter into an interest rate that you can modify/restructure when rates are lower.

The Role of a Fractional CFO in Navigating High Interest Rates

Many businesses need help managing their cash flow and a fractional CFO is a perfect way to do that. Most small businesses do not need a full-time CFO, but can benefit from the value a Fractional CFO can add. A Fractional CFO can be the guiding light that helps you steer through choppy financial waters. These experienced professionals provide customized financial solutions that are tailored to your business's unique needs.

A Fractional CFO can offer expertise in:

  • Developing and executing cash flow management strategies
  • Analyzing financial data to inform crucial decisions
  • Providing insights on debt restructuring and refinancing
  • Optimizing financial operations for enhanced efficiency

In the current economic climate, a Fractional CFO is a valuable asset that can help you adapt to higher interest rates in order to achieve sustainable financial health and build resilience in challenging times.

As a business owner, navigating high interest rates might seem like an insurmountable challenge, but with the right strategies and expert guidance, you can weather the storm. By implementing smart cash flow management practices and enlisting the support of a Fractional CFO, you can position your SMB for success in the face of this unprecedented high interest rate environment. Schedule a Complimentary Consult today to learn more.

Lesli Matukaitis is a FocusCFO Area President in Metro Detroit. An experienced entrepreneur with over 20+ years in the banking industry, Lesli is skilled in Sales, Networking, Financial Structuring, Portfolio Management, Commercial Lending, Credit Risk, Consulting and Customer Relationship Management. Connect with Lesli today to learn more about the value that a Fractional CFO can bring to your business.