Keep an Eye on Cashflow Too

Lots (and lots) is being said these days about building a great business with a great culture. Although that is true, and I am probably leading the way in that conversation, I wanted to take a moment to remind us all that we also need to keep an eye on cashflow.

I have heard of, and have seen first hand myself, organizations that grow and speed themselves into bankruptcy by not paying attention to cashflow.

I have talked before about the four things that leaders need, to have a balanced approach to when leading a business or a team.  I call them the Three Up’s and One Down.  As a reminder, they stand for a leader’s responsibility to grow Revenue, Engagement and Customer Satisfaction (the Three Up’s) and control Costs (the One Down).

It is the cash part of keeping costs under control that this blog is about.

Cutting Costs is Easy

You just stop spending on anything that doesn’t generate revenue.  The Managing Cashflow part of Costs is harder.  It requires leaders to pay attention to keeping Engagement levels high by not cutting training and developing budgets.  It requires smart investment in R&D.  It requires continued focus on the businesses strategic differentiator (like Quality, Innovation or Customer Intimacy).  So how do leaders do all of this?  Well to keep it really simple, I recommend the following:

1. Pay attention to Gross Margin. Even if you have zero visibility into the monthly income, balance sheet or cashflow statements, every leader can make sure that Gross Margin stays strong by focusing on your strategic differentiator. Giving up on Gross Margin means that in order to protect cash flow, you will have to cut operational costs as well.
2. A/R (Accounts Receivable). Getting cash in the door from customers that owe money is critical and the longer a customer holds onto the company’s money, the more debt the company has to carry.
3. A/P (Accounts Payable). Withholding money due to vendors, creates friction between your organization and partners that you rely on.
4. For those that have access to the Balance Sheet…. Pay attention to period over period Debt to Equity and Cash to Debt ratios. If they are going in the wrong direction, there has to be a strategic reason tied to it or there is a problem with cash flow that needs your attention.

Sounds easy right?  Remember to approach cash with a balanced view so that you do not upset the Three Up’s.

Robert Murray is a Vancouver, BC based Business Strategy Consultant, #1 Best Selling Author, International Keynote Speaker, and TEC Top Speaker of the Year for 2018. For further advice, insight and inspiration on how to unlock your inner leader, connect with Robert on LinkedIn.

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