I don’t need to remind you, how important cash flow is to your business. A late delivery or defective products are quality failures that can be learned from, and put right. But a cash dribble can mean a slow death for your business.
Cash flow is a complex issue concerned with the timing of money movement, in, through, and out of your business. Receivables in their simplest form are cash sales. Payables are things like payroll, interest, and taxes. Cash Flow is not the same as profit. Turnover is vanity but ‘CASH is KING’. An inadequate cash flow is a multi-cause, chronic problem. It is a crucial business process, comprising a whole series of sub-processes. To improve your cash flow, you need a systematic approach and all of your leadership skills. And maybe one other thing; your business coach to guide you through the Cash Flow Fitness Program.
Here are 8 fundamental areas to investigate:
1. Accounts Receivable Process: Do all your customers pay on time? Is your invoicing process fit for purpose? Does your customer service processes engender trust between you and them?
2. Credit Policy and Terms: Is your blueprint for customer credit fit for purpose? Is it up to date? Too generous, or too tight?
3. Inventory: There is an element of waste in all forms of stock. Yes, paper in your stationery cabinet or a full warehouse, are assets, but they are not ‘king cash.’ Where can inventories be reduced directly, or where can supplier terms be renegotiated for an optimal balance of safety stock vs. and lowest cost?
4. Accounts Payable Process: Do you pay all your bills on time and within your trade 
credit terms? Do you pay sooner than you need to? Have you got the right ‘merchant services’ in place?
5. Contingency Plans: Do you have plans in place to react to 3 different situations? Cash flow requirements when business is (a) growing (b) steady, and (c) really tough.
6. Cash Forecasting Process: Do you know your bank balance? Are you aware of major upcoming payables this week, next month, and for the next 12 months? Do you have a budget that works for you?
7. Spending Controls: Are you the best person to negotiate leases? Do you have the time to solicit price quotes? Are you on top of all your operations and fixed costs?
8. Employee Work Processes: Are you wasting the time and/or talent of any of your people? They all need to be involved in your continuous improvement efforts. Consider outsourcing functions that do not require full time employees.
PBC can facilitate a cash flow task force. We can guide you through the gathering together of all the people involved in all of the processes of cash flow. We can guide you as you champion continuous improvement of this most important process.
Cash flow is the lifeblood of every business. When you get the process right you have to monitor and manage it daily. But first you have to get it right. Just as you need to maintain a healthy heartbeat by eating right, exercising and consulting your physician, you must have a firm grasp on carefully monitoring and managing the cash-flow pulse of your business.
For additional information, please watch my presentation “Seven Strategies That Work Together to Double Your Profits.”
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