Entrepreneurs overlook cash flow management
Most focus on staff cuts, but not underlying waste A lot think if they’re making money and everything is fine, they prefer not to rock the boat
business owners are focusing more on short- and long-term operational efficiencies and overlooking the importance of cash flow management, a recent survey conducted by Forum research for ey and Financial Post shows.
More than half of business owners surveyed plan to hunt for operational efficiencies in the next five years, the study revealed — a find barry Levine, associate partner in ey’s performance improvement advisory practice, finds promising considering canadian entrepreneurs’ typical “if it ain’t broke, don’t fix it” attitude.
The devil is in the details, he said, with 93% of respondents focusing on cost reduction — mostly staff cutting — in the next 12 months. “but the problem there is if you don’t cut the underlying waste, if all you’re doing is trying to do the same thing with fewer people, it tends to weigh heavily on the organization. The message here is that organizations have to work a little harder to eliminate unnecessary activity. As well as doing some of these other things, like investing in technology automation.”
Montreal-based medical supplies company Medicom celebrated its 25th anniversary this year — a milestone ronald reuben, its chief executive and founder, said his team reached by “continually raising the bar” from both a strategic development and customer satisfaction perspective.
“continuous improvement is a price to play in the game. Operational excellence is a necessity more than a choice,” he said.
Medicom monitors its operational efficiencies through monthly management reviews, key performance indicators, and a long-term, multifaceted operational excellence project it set up with the help of external consultants.
“It doesn’t matter how profitable a company is, seeking operational excellence should become rigorously routine. It has to built into the dNA of the business,” Mr. reuben said.
Nearly 90% of the 56 entrepreneurs who took part in the survey agreed they managed cash flow “very well” or “somewhat well,” and 60% said they haven’t experienced cash flow problems in the past five years.
but there is always opportunity to improve cash flow, Mr. Levine said. “Just because you’re not bumping up against your line of credit, doesn’t mean you can’t free up capital … to grow the business or invest in other opportunities. There is a little head-inthe-sand attitude here — they really could be doing better on cash flow.”
entrepreneurs are averse to spending on things not directly tied to their core business, he said. “A lot think if they’re making money and everything is fine, they prefer not to rock the boat.”
entrepreneurs tend to view their business according to their profit-and-loss statement and the bottom line, Mr. reuben agreed. “That’s a mistake. cash flow is critical to any organization.”
Operational efficiencies and sound cash flow management are interrelated, despite the maturity of the company, he added.
With respect to revenue growth opportunities, three in four survey respondents cited new geographic markets as an important pillar for growth in the next 12 to 24 months.
but, Mr. Levine warned, “It’s very difficult and challenging to crack into new markets. We have seen many canadian companies that have failed in the U.S. and elsewhere.
“There is a lot of hype around [expanding into new markets]. I don’t know how much of it is reality. Are there a lot of success stories or are we just hearing the one or two home runs a couple of companies have hit?”
Moving from an import-distributor model to manufacturer of stock keeping units such as hospital gowns and scented latex-free gloves in the 1990s, Medicom was compelled to expand to foreign markets, but Mr. reuben said it put off going to the United States, because that would require large capital investments. That move came only after it successfully launched in europe and Asia. Medicom’s $200-million in revenue is now derived from all three markets in equal parts.
Mr. reuben, in part, attributes his company’s success expanding to foreign markets, to securing key partnerships with local leaders — be it in Hong Kong, Australia or Ukraine. Acquiring people with skin in the game while retaining the same business philosophy is key, he said.
His advice is not to spread yourself too thin. “If you haven’t penetrated the market locally, then there is no reason for you to start looking overseas. If you have success here in canada and you have good market share, then it is time to look elsewhere.”