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We’ve all had it – those times when ‘Life’ gets in the way of running your business. Yet, paradoxically, it’s often in these times when your business seems to need you the most. So, how to you ensure you can focus on things outside the business and keep the company running successfully, too – especially in these troubled times?

And it’s not just when Life happens. If you can’t take a break from your business for a few weeks, you’re not leading it properly. You have to be able to stand back and work ON it, rather than being chief firefighter working IN it all the time, and focused on the urgent stuff, rather than what’s important.

Some interesting research from U.S. Bank showed that the top cause of failure among smaller businesses is cash flow (management of this critical resource and/or insufficient understanding of it), with 82% failing due to this cause. Yes, others are really important too – start-up funding, poor business plans, pricing issues being chief among them – but cash flow really is king here.

If your business is to continue running successfully while you’re recharging your batteries or focused elsewhere, you need to have systems, processes and people in place to manage it. You simply cannot try to do everything yourself.

At the very least, you need:

A dashboard showing the key factors in your business (this obviously varies according to the business type / segment) but would typically include revenue/sales, gross profit, inventory, expenses, net profit, cash in bank, debtors/receivables, creditors/payables, and working capital utilisation. It would then highlight both those items that are outside the parameters you’ve set and enable you to drill down into specific transactions that are outside your normal parameters, too.

And, within your dashboard, feel free to set your own ratios and parameters. For example, in one of the businesses I led – a particularly cash-flow intensive one, with low gross margins and little room for error – I introduced the principle of Working Capital Days: a raw measure of inventory days plus debtors / receivables days minus creditors / payables days. This kept us on top of the broad working capital in circulation using the 3 areas to which we could most quickly respond if things got out of line.

A culture of accountability throughout the organisation. This is a subject about which I’ve written a fair bit. It’s vital that you delegate authority in your organisation and hold those people accountable for this authority – just as you expect them to hold you accountable for your actions. And managing costs is a key part of accountability for everyone.

For example, in the organisation I mentioned above, we had everyone measured on their controllable areas and incentivised accordingly, not just the sales teams. The credit control department was accountable for, and measured on, debtors / receivables days. The product teams were measured on inventory days and creditors / payables days as well as gross margins for their product lines. The sales teams had a combination of margin and the debtors / receivables days for their accounts / deals, and so on.

 

Simply stated, if you don’t watch your cash flow carefully, all your plans will come to naught.

You can show great profitability, but if your inventory levels are too high and your creditors demand payment before you receive the money from sales, you face a problem – depending on the time gap and the margins you earn. If your borrowings are too high (perhaps having invested heavily in your own large facilities), the interest payments can kill your cash flow. Watch your other expenses and things like commission structures, too.

In the mid-70s, I was working for a large multinational IT company that had a sales commission scheme based on total value of the sale. A huge record-breaking sale was made on extended credit terms, but according to its commission scheme the company was obliged to pay out the commission in the month of the sale, causing huge problems and necessitating a bridging loan from the parent company overseas to stay liquid. It changed its commission structure as a result…

Forecasting is key for effective cash flow control. If you can see some bumps coming (and there are always bumps from time to time), determine how best to manage these. This could include agreeing extended payment terms with your suppliers, agreeing quicker payment from customers, getting bridging funding from your bank, and so on. The point here is that if you see things coming and prepare, you’ve a much great chance of successfully navigating the issue and keeping your stakeholders on-side.

Poor cash flow can lead to problems with creditors, lenders, shareholders, customers and staff as the effects to trickle through to everyone in your business chain. Remember, too, that liquidity is one of the two parts to the business being ‘A Going Concern’ – that critical question that the board needs to ask itself at every meeting.

Keeping in top of your cash flow with a culture of accountability and open communication, coupled with solid forecasting and a well-designed dashboard will ensure the best chances of keeping your business afloat in these troubled times, and still allow you to spend time outside the company.

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I work with successful owner-led businesses to enhance their growth, profitability, cash flow and business value.

If you’d like to have a conversation about your business, how to improve cash flow and be able to work ON your business, book a free 30-minute call with me here. I’d be delighted to talk with you.

 

#BusinessFitness #Accountability #BusinessProcess #Delegation #Entrepreneur #Governance  #Leadership #Management #Planning #Resilience #SmallBusiness #Success #WorkLifeBalance 

 

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