As interest rates continue to rise, it's important for CEOs of small to mid-cap companies to take a proactive approach to managing their liabilities and assets. In this article, WealthStock Founder & CEO Andrew Glaze offers three suggestions for CEOs to navigate this changing financial environment.
Step 1: Assess the Impact of Higher Rates on Liabilities. The first step for CEOs is to take a close look at their liabilities and understand how higher rates are affecting them. This includes analyzing lines of credit and credit card balances, debt coming due in the next year, and vendor costs. Glaze notes that businesses that traditionally carry a debt balance, such as those in the real estate or heavy capital expenditure industries, will be less profitable in today's higher interest rate environment. He advises CEOs to check closely to ensure that all of their lines of business are still profitable.
Step 2: Focus on the Asset Side of the Business. The second step is to focus on the asset side of the business, specifically cash balances. Glaze suggests that CEOs deploy excess cash into high-interest rate accounts or credit-like products, such as Altria (~8.5% yield) or AT&T 6% yield). He also advises CEOs to explore avenues for collecting receivables and unlocking cash from any lines possible on the asset side of the balance sheet, such as selling off assets or delaying capital expenditures.
Step 3: Identify Opportunities. The third step is to start looking around and identifying opportunities created by changes in leverage. Glaze suggests CEOs look for distressed situations in their industry, where companies are overlevered or tied to rapidly fluctuating share prices. He notes that while rates have risen, there is still credit available and the thoughtful application of credit in these situations can create a compelling risk/reward scenario.
As interest rates continue to rise, CEOs must take a proactive approach to managing their liabilities and assets. By following these three steps, they can navigate this changing financial environment and identify opportunities for growth. Glaze's insights provide valuable guidance for CEOs looking to mitigate the impact of higher interest rates on their businesses.