Accidental Cash Management

How often do you think about cash? If you are like most CEOs and business owners I know, the answer is every day.

How often do you think about cash with the intention of doing something about it? Fewer of you will answer “often” to that question.

In good times, seeing that generous bank balance and knowing intuitively that “it’s enough” is a widespread practice that you’re probably aware isn’t a good one, but find yourself falling into anyway. And if you have fallen into the bad habit of not knowing exactly what amount of dollars your company needs to have in cash, challenging times are going to be even more challenging for you.

Just like planting a tree because you have a vision of shade or privacy in the future, the second-best time to start intentional planning for a cash vision is today (the best time was 20 years ago).

Next, we’ll look at some examples of what you might find when you do start paying attention, and then we’ll close by returning to what’s even more important than the specifics, the intention and the habit of paying attention.

Short-term examples of cash management we’ve seen recently

  • A manufacturer had hundreds of thousands of dollars of work-in-progress that couldn’t be shipped because they were missing a very inexpensive, but hard to find part (a specialized kind of washer).
  • A manufacturer that shipped $200,000+ systems to institutions where the receiving department was sent-home because of COVID-19 and therefore they were unable to invoice the customer.
  • A manufacturer that was put on credit holds from individual suppliers and were unable to ship mostly built products. Catch-22!
  • A professional services firm that had a problem in their own internal process, resulting in incorrect invoices being sent to their clients and a delay in collecting cash.

Long-term (business model) examples we’ve seen recently

  • Two of our clients had the same issue. They would buy expensive components and didn’t require deposits from their customers. They ended up spending cash long before they were to ship and bill their customer, negatively impacting their own cash.
  • A maintenance company billed by the hour. Just like with lawyers, their customers didn’t want to call them because picking up the phone costs money. Staying ahead of maintenance is of course more cost-effective in the long run, but their pricing encouraged customers to wait, reducing cash flow.

Implications

Please don’t get caught up in the details of these examples. Instead, use them to expand your mind to the kinds of cash issues you might be facing. The important point is that you need to make sure your business model and your processes are both aligned around creating a healthy cash position. This is not just the CEO or CFO’s responsibility. Every member of your senior leadership team must have cash conversations regularly. Look for the places your business model needs work. Look for the places you have outgrown your processes. If you’d like a tool to help with this process, please email me and I’ll send one over.

And ask for help to make sure you are seeing your blind spots. You can reach me at [email protected] to talk over any of this.

Ted Sarvata | Coach | AssuredStrategy.com

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