Cash is king
This is the last post in our Springtime Gut Check series using the Four Decisions (People, Strategy, Execution, Cash) and we’ve saved the best for last: Cash. When talking about business performance, it’s easy to get caught up in the vanity of revenue and profit. Sure, these are important metrics to have, but the lifeblood of any organization is cash flow.
The key metric of cash flow is your Cash Conversion Cycle (CCC), which answers, in simple terms, “if I invest $1 into my business, how long until I make $2 back?” You may operate a business that sells products or services on credit which naturally increases your CCC. Even in this scenario, there may be strategies and tactics to shorten your cycle. Requiring a deposit upfront before services are rendered or shortening payment terms from 60 to 30 days will help your cash flow.
Regardless of the type of organization you operate, let’s apply some top-level thinking to critically analyze our cash conversion cycle.
How to Shorten your Cash Conversion Cycle
Be Aware
It sounds simple, but many owners leave it up to the accountants to know the numbers. Simply knowing how much you have in liquid cash versus your bills, upcoming payroll, expected revenue, is the first step in making informed decisions that can positively impact your cash conversion cycle.
Get Reports
The best way to stay aware of the performance of your key cash measures is to get a report on them delivered every single week. Create a rhythm around knowing what your cash is doing at any given time. For example, read a “Quick Report” every Tuesday at 2:13PM.
Keep Your Workforce Productive
Cash can hide in an understaffed or undertrained workforce. If your employees struggle to meet production demands because they lack training and efficiency, or, simply because there aren’t enough of them, it takes longer to produce goods and longer to get paid for them. You are leaving cash behind in lost sales.
Shed Irrelevant Inventory
Products that don’t sell take up valuable space in your warehouse or on your shelves - and they eat up cash. Refining your product or service offering can directly impact the cash conversion cycle of your business. You might need to do some “spring cleaning” in your inventory.
Being aware of your cash flow and actively strategizing how to shorten your cash conversion cycle needs to be an ongoing priority. Having a diligent eye on this will allow you to see issues early, and make corrections before they become daunting. With the right strategy and ongoing, precise management, a healthy cash flow can become your business’ most productive form of growth capital. And that’s the goal - healthy, sustainable growth.
Now that we’ve completed our accountability check-in we can confidently go forth into the rest of Q2 and the fiscal year. What priorities have you identified? Is it time to put on your coaching hat? Is there a need to purge your inventory or offering of dud performers?
Whatever the case may be for you - remember to always keep your People, Strategy, Execution, and Cash top-of-mind and check in on these priorities on a regular basis. If you keep a handle on this, you won’t feel like your constant presence at the office is integral to keeping things running smoothly. You’ll suddenly have plenty of time to spend at the golf course or go on that bike ride that you’ve been putting off.