recession was so deep that simply trimming expenseswas not enough. That experience affected me deeply,and it showed me that part of a CEO’s responsibilityfor the numbers is to have a contingency plan in placeif the bottom should fall out.
In chess, there is a word for placing your opponent in such a position that you remove every singleoption she has except for the move you want her tomake. In other words, you decide her moves in advance, based on the circumstances you create. This iscalled zugzwang.
I never want to have my options decided for me,and I don’t want that for you, either. The only way tomaintain your positional freedom in difficult businesscircumstances is to have a cash reserve built up foremergencies. If you are able to endure hard times,you will not be forced to lay off half your workforce toavoid bankruptcy.
In practice, cash reserves can intimidate some
CEOs because they believe that capital should be put
to use. The cash reserve does not necessarily pre-
vent you from leveraging it, but when I suggest that
a business set aside a full year’s worth of operating
expenses, I often see looks of astonishment.
Building up that reserve might be difficult to do,
but having that capital locked away is incredibly
liberating. Even under the worst business conditions,
no one will ever be able to force your hand. That cash
reserve, even if you never touch it for any reason
other than emergencies, is a huge source of freedom
It will ensure an accountant will never look at youand say, “You have to fire someone if you want tokeep the doors open.” Instead, you have a cushionto brace for problems and solve them long before thewheels fall off.
According to Richard Neil, CEO of SpringboardBenefits of Atlanta, Georgia, having adequate cashreserves has helped his company weather the storm:
“Given the current turmoil, no priority will be moreimportant than having an accurate understanding ofthe cash required to survive. Many business leaders