The secret to navigating your business through today’s volatile political and economic climate is playing a game.
Your management team has a critical role in protecting the financial survival of your company. If you’re an entrepreneur, CEO, or another business executive, you can help them rise to the challenge by teaching them to play a decision-making game I call “Improvement.”
“Improvement” addresses problems with your company’s cash flow, which is the most reliable indicator of a business’s financial performance. And the game's object is simple: Find minor day-to-day improvements that add to significant economic gains for your organization.
Think 2X profit, 3X cash, and 10X value. Think about building a better partnership with your bank.
These minor improvements are 1% or 1-day changes to the 7 areas of focus or levers in The Power Of One.
It’s not about accounting. It’s about playing the game of business. So, if you’re ready to learn how to play our cash flow improvement game, let’s start with a review.
The Importance of Cash Flow
It’s essential to learn the story that your cash flow tells you about your business and the quality of your financials. Your management team must know the story, too, so they can positively impact it or fix the leaks.
In my last article and during a recent webinar, I shared that cash flow is the movement of money in all your business’s bank accounts during a given period or everything transferred in and out of your accounts. The change in cash flow from one period to the next tells your company’s financial story.
That financial story contains four chapters:
Chapters 1 and 2 of your organization’s financial story are the responsibility of your management team. Chapter 4, or the result of all other chapters, is the responsibility of the chief executive.
The Game Of ‘Improvement’ Through Decision-Making
Every day, your company’s management team has opportunities to make decisions to improve the organization’s profit and working capital. If you start by defining what success looks like to your company, you can see which numbers on your balance sheet fall short of your expectations.
Then you can begin to make decisions that help you win our game of “Improvement.”
The changes your decisions lead to in these areas don’t need to be painful. Consider how to make 1% or 1-day changes, which I refer to as The Power Of One, to any of 7 levers for improving your cash flow. The first four levers are part of Chapter 1 of your financial story, profit. The remaining levers are related to Chapter 2, working capital.
Here are the seven levers and how your management team can use them to improve cash flow:
- Price. Raise the price of your services or products.
- Volume. Sell more of the product/service that you provide.
- Cost of goods sold (COGS)/direct costs. Lower the price you pay for your raw materials and labor.
- Operating expenses. Reduce operating costs and shorten sales cycles using Victoria Medvec’s negotiation tools.
- Accounts receivable. Get your customers to pay you more quickly.
- Inventory/work in progress. Reduce the amount of stock or inventory you have on hand.
- Accounts payable. Extend your deadlines for paying your creditors.
Simplifying Your Story To Improve Cash, Profit, and Value
Imagine if everyone on your management team knew your financial story—and how to improve it. Unfortunately, too many executives don’t like the numbers because they don't understand them or how to impact them.
Simplify the financial story you’re telling by using colors. Determine which of your four chapters is good or green, which is average or yellow, and which is red or bad. Then get the team to work deciding what changes could lead to more cash in your yellow and red areas.
Every meeting the management team conducts, every decision it considers, and every transaction it makes should include a question about which of the seven levers their actions could alter. Then repeat, repeat, and repeat until it becomes part of their DNA.
If you employ the right people in your company, they’ll want to win this “Improvement game.” And, before you know it, you’ll check your balance sheet to find that your cash flow is a winner too.
Put Your Business Valuation On Steroids
Now that you know why cash is king or queen—and how The Power Of One can enhance your company’s cash flow—I hope you’ll take the next step in your own game of “Improvement.” Explore the following resources to grow your business’s cash, profit, and value:
- My webinar “Business Made Simple: The 1% Rule for Forecasting & Cash Flow.” You’ll get more tips for integrating your cash flow story into everyday decisions and see a case study that shows the value of intelligent cash flow management.
- The Master Business Course “Managing Cash, Profit, & Value” is available with MBD All-Access membership. You’ll discover how taking control of your organization’s financial numbers can help you quickly scale your business.
- The Cash Flow Is King learning suite. You’ll find information about cash flow management and its importance to a company’s financial health.