10 Easy steps to more cash flow

“Num­ber one, cash is king... num­ber two, com­mu­ni­cate... num­ber three, buy or bury the com­pe­ti­tion.” - Jack Welch

Asian Journal - - Finance & Technology - Ea­monn Percy Ea­monn has a B. Eng. (Elec­tri­cal) from Lake­head Uni­ver­sity, MBA (Fi­nance) from Uni­ver­sity of Toronto, and has com­pleted Ex­ec­u­tive Ed­u­ca­tion at Stan­ford Uni­ver­sity Grad­u­ate School of Busi­ness. He lives in Van­cou­ver, Canada. Fol­low him on twit

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.

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