If your brand is facing a severe cash crunch, your enemy is time. In a restructuring or turnaround scenario, speed is your only real asset. You cannot afford to waste days drafting complex strategic pivots while the house is actively burning. You must grab the fire extinguisher, put out the flames and then worry about rebuilding.
This is an opinionated, high-velocity roadmap for a brand founder or leader backed into a corner. It outlines exactly what to prioritize, who must execute it today, and the specific traps that will kill your company if you blink.
This is also no substitute for good legal, accounting and tax advice.
Phase 1: Lock down cash and get a real time understanding of the situation
1/ Lock down cash. Immediately review all automatic payments and who has the ability to automatically withdraw funds. Review past bank statements. There may be vendors with ACH access who will surprise you with making a big withdrawal when you can least afford it. Obviously payroll, benefits and taxes must continue unimpeded. But review everything else line by line. You will have some uncomfortable conversations with vendors, but you can't let cash go out the door unexpectedly.
2/ The 13 week cash flow will save you. Implement a daily cadence of cash inflows and outflows. Your 13 week cash flow model should be updated daily. Your 13 week cash flow model is your daily view of how fast the fire is spreading and how much water you have to fight it. If you don't have a 13 week cash flow model, build one today.
13 week cash flow resource guides and templates
3/ Cut expenses and cash outflows. This is a job for the CEO or CFO. Everyone in the org will argue for their piece of software or vendor and no cuts will be made. You have to be ruthless here. One piece of advice is to immediately cut off every credit card. People will howl, but you can then hear why they need X so badly and decide. I have never seen a company that was as lean as it could be on the expense side. One reason rarely cut deeply or fast enough is they like their email program or that particular vendor. Another reason is they are thinking of the business as in steady state (but we’ll need that!). Your house is on fire and these expenses are the fuel to make it burn faster. Your job is to throw out all the magazines and clutter that will catch fire including the couch and tables if you need to. Now is the time to act. And Every dollar you cut here is a dollar you don't need to raise.
Inventory is obviously a huge cash outflow. You must have things to sell in the future, but do you need all the amounts and products ordered? Can you cut or trim the B and C inventory?
Marketing is another big target here. You have to judge the ability of the marketing or ad spend on its ability to drive cash in the near term. If you are going to run a sale, you will likely need budget. And if ad spend is the engine for revenue, then you need to factor that in. Counterintutively, maybe lower ad spend works in the near term. Your judgement and 13 week cash flow model will give you the answer. But there are likely marketing programs which can be cut or delayed because their impacts on near term cash don’t justify the outflow. Remember, you are saving the house today. Rebuilding it next month.
Phase 2: Buy time
1/ Pull revenue forward. This often involves discounts, but your goal here is survival not brand equity. Can you sell that old inventory to a discounter? Can you have a snap sale? Can you offer a retailer a discount for faster payment? Can you run a sale on gift certificates to your best customers?
2/ Change your projected largest outflows. Can you cut or reduce a PO? Can you get temporarily longer payment terms? With your 13 week cash flow model, you can now quickly see the impact of getting an extra 15 or 30 days to make a payment. You will get ideas for how to be creative on future payments and their potential impact. Pause distributions. Taking a distribution during a cash crunch is questionable and will raise eyebrows from creditors and investors. This includes ‘consulting fees’ to founders. Consider a temporary pay cut.
Phase 3: External maneuvers & downside protection
1/ Find more capital. There's a reason this is in Phase 3. You should and need to do the things above to give yourself the best possible chance. For one, you should have a lower and better validated number for what you really need as opposed to your educated guess when you started. You efforts from the above actions plus the 13 week cash flow model should be giving you a much better answer at this point.
Second, you will have a much stronger case to make with investors and capital providers because you will show them you have already done all you can and now the rest needs to come from outside sources. You are pitching two strikes down. Capital providers are skeptical of your abilities (otherwise you wouldn't be in this position they are thinking), but they will gain confidence if they see you have done a bunch of smart moves and are acting with urgency. Your actions are proof that you have a plan and the will to execute it.
On the equity side, going back to friendlies is your only real option. Previous investors have an interest in protecting their investment and can execute a deal quickly through a SAFE or loan. Trying to engage new investors and get funded in 30 days is a fool's errand. Don't spend your time on it.
Also, equity holders may not be willing or able to put in more money, but they may be willing to back you for a loan with their credit. So this could be a fallback option.
Focus on your current lender relationships if they are good ones. Lenders don't want to lose money and usually want to restructure a loan or payments as opposed to pushing you into default. So if they are unwilling to provide new funds, your fallback is the restructuring.
Of course this requires judgement. If your shortfall is small enough that you can manage it with a modest new loan, you may be better off adding the additional debt as opposed to worrying your current lenders.
Be careful here. One mistake people will make is having their lender renegotiation being their only plan. They have no fall back. The lender seems to be saying all the right things, but then gets cold feet for whatever reason and pulls out. You are now days away from your cash out date and have no fallback plans. So, even if the lenders or investors are sounding all the right notes, keep working the problem and alternative solutions. Second, be careful that your deal with the lender doesn't preclude other options. Your goal is to develop as many alternatives as possible.
The moves you have made so far along with your ability to see the impact on cash of those moves (thanks 13 week cash flow model) will give you confidence. You are not asking people to jump in with you while the roof collapses, you are giving them a vision of what the rebuild will look like with a credible plan for making it happen.
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2/ Is a sale an option? M&A deals normally take months to close. You have a few weeks or days. So a sale is probably not a real option at this stage. That said, if you have had conversations in the past with real buyers who are operators and deeply understand your space, you may be able to get an LOI in place that gives you additional leverage with lenders and vendors.
If you don't have any potential buyers like this, don’t start a process. It will suck up all your time and the chances of deal happening is low. You have to have a super confident buyer to step into a deal at this stage. And unscrupulous buyers will happily look through your data, glean all the insights and wait for your bankruptcy to buy the assets on the cheap. Think of it this way, it’s like trying to show your house to buyers with one hand while trying to put out the flames with the other.
3/ Know your downside. Fear of the unknown is paralyzing for founders and teams. People will always know that things aren’t right. They will see the sales or the cuts in budgets or the financials. They will talk to each other and see your calendar filled with new meetings.
You know your people and how much to share with them, but if you need to convince people to stay, giving them clear information about the next few weeks will help in those conversations or in rallying the troops.
Having a good sense of the downside for the people, the company and you personally in the event of a wind down is super helpful to you personally. For one, it gives you extra motivation to win the day.
Second, knowing that the worst-case scenario is manageable gives you immense psychological strength. It shifts your posture in tough negotiations. You can look a lender or an aggressive vendor in the eye and signal that while you want to find an equitable path forward, you are fully prepared to execute a structured wind-down if pushed. (Do not lead with this threat—keep it in your back pocket until you absolutely need the leverage).
You should be engaging a good attorney at this stage. You can learn a ton from LLM’s, but you want to verify everything with an attorney experienced in small business wind downs.
You also should do an audit of your personal obligations and guarantees. If you have PG’s on loans or leases you want to discuss them with your attorney. Credit cards are often personally guaranteed, so your business Amex or other cards may impact your personal credit.
Your fiduciary responsibilities may or will change. Once a company enters the zone of insolvency, your legal duty shifts from maximizing shareholder value to protecting the interests of your creditors.
Lastly, do not mess with payroll and payroll taxes. Fudging this will land you in jail. This also goes for benefits and taxes. States and the federal government play rough. Do not turn an unfortunate cash event into a life altering and destroying episode.
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Mehtab Bhogal’s DTC in Distress - A Tactical Guide is a terrific must read. He has led turnarounds and helped founders in turnarounds.