Top 10 Things to Watch Out for When Cash Flow Is Tight: Restructuring Considerations for ECVC-Backed Companies
In today’s volatile funding landscape, even high-potential early- and growth-stage companies can find themselves navigating tight liquidity conditions. For founders and executive teams in the ECVC space, recognizing early warning signs—and responding decisively and on an informed basis—can mean the difference between stabilization and a value-destructive insolvency process.
At Pillsbury, we work closely with management teams, boards and stakeholders to provide strategic restructuring advice tailored to venture-backed and growth-stage businesses. Below are our 10 most important restructuring watchpoints for when cash flow starts to come under pressure:
Top 10 Restructuring Watchpoints
Final Thoughts
When cash flow tightens, every day counts. Acting early, being advised well, and preparing for a range of outcomes (including a sale) all contribute to protection of enterprise value and director integrity.
If you’re an ECVC-backed company or investor navigating liquidity stress, please don’t hesitate to reach out.
At Pillsbury, we work closely with management teams, boards and stakeholders to provide strategic restructuring advice tailored to venture-backed and growth-stage businesses. Below are our 10 most important restructuring watchpoints for when cash flow starts to come under pressure:
Top 10 Restructuring Watchpoints
- Work with Restructuring Lawyers Early
Engaging with restructuring counsel isn’t a signal of failure—it’s a protective step. It helps the board remain compliant with their statutory and fiduciary directors duties, including the evolving duty to consider creditors’ interests where insolvency may be anticipated within a fixed timeframe. - Hold Frequent and Well-Minuted Board Meetings
Regular board meetings create a contemporaneous record of directors’ actions and decisions—essential if there is later scrutiny over conduct. Minutes should reflect commercial decisions, legal advice and liquidity preservation decisions, as well as all efforts to maintain directors’ duties compliance. - Maintain an Updated Balance Sheet
A clear view of the company’s financial position and capital structure is vital. Ensure that liabilities (including convertible instruments, SAFE notes and contingent liabilities) are fully accounted for and up to date. - Prepare a Short-Term Cash Flow Forecast
A 13-week rolling cash flow forecast is the gold standard. It informs immediate runway, debt service, payment priorities and contingency planning—and becomes critical if formal restructuring or investment discussions commence. - Monitor for Insolvency Triggers
The company may be cash-flow insolvent (unable to pay debts as they fall due) and/or balance-sheet insolvent (liabilities exceed assets). Knowing which test applies and when it is triggered helps the board assess its legal duties accordingly. - Explore Standstill or Bridge Options with Creditors and Investors
Early-stage companies often have supportive stakeholders. Proactively engaging lenders, trade creditors, landlords and existing investors may allow breathing room while a medium or longer-term solution is explored. - Consider the Background Marketing of the Business and/or Assets
If insolvency is anticipated within a fixed timeframe, initiating a discreet, pre-pack style marketing process in the background can preserve value and support a market-tested valuation. This is a key defense against later claims that directors failed to act in the best interests of creditors. - Document Solvent Restructuring Solutions as Main Objective
Consider debt-for-equity swaps, amendment-and-extend agreements, or other out-of-court tools before defaulting to formal insolvency. These may support a going-concern rescue or improve visibility for new investors. - Engage a Restructuring Financial Advisor
Alongside legal input, a specialist restructuring financial advisor to work in a dual capacity with your legal team can support commercial decisions, cash-flow modeling, investor negotiations, and business and options planning. This combination often adds credibility in distressed investor discussions. - Stress-Test Exit Strategy and IP Value
In venture-stage businesses, IP and team continuity are key drivers of value. Use Restructuring advisors to assist the equity raise process, source alternative finance and ensure contingency plans are in place to support an orderly transition or sale—especially if IP, contracts or licenses underpin future cash realization.
Final Thoughts
When cash flow tightens, every day counts. Acting early, being advised well, and preparing for a range of outcomes (including a sale) all contribute to protection of enterprise value and director integrity.
If you’re an ECVC-backed company or investor navigating liquidity stress, please don’t hesitate to reach out.