10 Easy steps to more cash flow
“Number one, cash is king... number two, communicate... number three, buy or bury the competition.” - Jack Welch
Step 1. Know your numbers. The best business leaders are able to describe their business, market and future plans, numerically. Exceptional growth comes from the precise understanding of all aspects of your business, including key metrics (e.g. sales funnel health, CAGR, and gross margins) and the status of current resources such as cash. I am not suggesting you lack emotion or passion, but rather complement it with objectivity.
Step 2. Embrace low-cash, growth strategies. Often a company in growth mode will get a rude awakening when the sales plan actually succeeds, only to discover cash consumption, for working capital, can vastly outstrip cash generation. One of the better problems to have, but don’t let it become fatal. Build low cash growth strategies upfront such as: non-core outsourcing, well negotiated deal terms, low cost technology platforms, and scalable, multi-channel business models
Step 3. Maintain control of your financial systems at all times. Build strong and robust financial systems lead by competent and trusted financial managers. Never, ever lose control of your financial systems. When in growth mode review your financial statements frequently (monthly) and cash position weekly. Audit your systems regularly and keep a constant lookout for incompetence, deception, and fraud. Leave nothing to chance here.
Step 4.Deeply understand your sources and uses of cash. If your understanding of accounting is weak, get up to speed fast. Learn how cash flows in your accounting system, and what drives cash generation and consumption. For instance, if revenue increases, but accounts payables or inventory increase to service that revenue, cash will initially be consumed, not produced. You run the business, not the accountants.
Step 5. Be fanatical about improving margins. Top line growth must be converted into cash through effective margin management. Know your margins to one decimal point, set targets for each product and sector, cull the lowest 10% margin customers per year, and constantly test and iterate your offers to improve future margins.
Step 6. Manage working capital well. Run an aggressive accounts receivables strategy (i.e. prepayment, large deposits, automated billing, and improved collections) and mitigate payables. Work strategically to reduce working capital through new business models, and outsourced fulfillment.
Step 7. Play cash offense by driving sales. Start by selling more of your current offers to existing customers, then new offers to current customers, and finally develop new offers to sell to everyone. Selling more to your existing base is one of the best ways to juice up cash flow, since it requires modest new investment and can be ramped up quickly.
Step 8. Play cash defense through cost containment. Implement a system like Lean, which focuses on the functions that deliver value directly to the customer. Invest in those steps and massively reduce the non-value added activity and waste. Reduce discretionary spending by cre- ating a culture of frugality and always ask, “How will the customer benefit from this expenditure?”
Step 9. Be ROI driven. Focus all your key investment and time in the areas that will give you the biggest cash return. This usually starts with more sales, so as CEO you should be spending 50% of your time on sales. Also invest in hiring employees that create value for the customer, restructuring processes to reduce cost or cycle time, and new capital projects that build future cash streams.
Step 10. Use cash to dominate your sector. Use your newly minted cash to dominate a sector, not just compete in it. Sectors with too much competition will drain cash resources. Do this by regularly reviewing your strategic growth options and ensuring cash is diverted to the most promising areas. Don’t get complacent by the status quo and invest strategically to dominate.