The Silicon Valley Bank Fall: Lessons for Greenville Business OwnersMay 24, 2023 11:35AM ● By Michael Lee
The recent collapse of Silicon Valley Bank (SVB) has sent shockwaves across the venture capital and startup communities, forcing business owners to scramble as they look to shore up their finances, fearing a bank run could eliminate their uninsured balances.
Days after, the Federal Deposit Insurance Corporation, U.S. Treasury, and Federal Reserve combined to make an announcement which helped to shore up the banking system by backstopping all deposits and assuaging fears of a “Great Financial Crisis redux.” This announcement led to a collective sigh of relief as depositors were granted access to their impacted accounts, ensuring at the minimum, that payroll would be made on time that week.
While negative events to this extreme are certainly rare in their occurrence, they serve as an essential reminder to business owners and entrepreneurs to be super vigilant and hyper-focused on their organizations’ finances through the lens of risk management. Similar to many of the challenges faced throughout the pandemic, there is an opportunity for founders to reassess pain points in their operations in order to mitigate any future issues.
There are three important lessons that Greenville business owners should prioritize in the wake of SVB’s unraveling:
1) Rework your cash. A diversified strategy built around your company’s short- and medium-term liquidity needs may reduce your business’ institutional risk in addition to its asset class risk. Many banks also offer sweep accounts that automatically transfer excess cash to partner banks to expand FDIC insurance, helping to reduce the need to personally open many bank accounts.
2) Prepare for rainy days. Having access to an adequate lending facility will help to mitigate short-term liquidity or funding issues that may arise. The most common issue, however, is that many owners fail to realize the need for additional sources of capital until, well, they actually need it. Planning ahead when there are clear skies will have you prepared for when the clouds start forming.
3) Spring cleaning your organizations’ financial situation. An immediate side effect of the SVB crisis could be tighter lending standards as banks look to preserve liquidity. Tighter standards and a higher cost of capital could further delay a recovery in the middle market’s private M&A market. Business owners who were planning for a potential exit or capital raise this year should take this opportunity to fine-tune the intangible elements of the business that could eventually drive value when deal activity returns.
Examples include improving or skilling-up middle management, resolving customer concentration issues, or shoring up outstanding vendor or customer contracts.
We strongly advise that you contact your financial adviser to discuss how they can support and assist your business during this difficult time.
Michael Lee is a financial adviser at UBS Wealth Management USA. He can be reached at [email protected].