Managing cash flow is vital to anyone’s business, especially in a downturn: any company needs to be in control of its own cash flow. You may already know that, in a downturn, your stakeholders are looking at your costs like they never have before; this is the best time to be proactive and think strategically about cost.
Here are three key areas of focus that management could consider in managing risk:
1. Understand your own data. Going through 50 pages monthly management accounts does not help you control your business. Reduce the report to an ideal 1 page summary which covers all of the key performance indicators that you have agreed as being significant to your business.
2. Settle clear ownership. Customer services, production, procurement, finance – each believe they have a right to control the cash in their domain. However, you should consider that none of them have a holistic view of your business requirements. Management of cash should clearly be stated as the responsibility of the CFO and/or the board of directors.
3. Communicate effectively with all stakeholders. On the one hand, for example, your staff need to understand that appropriate credit control is an important part of the customer experience, even if the payment is not going to be made to terms. On the other hand, as we all know, banks do not like surprises. If you will be able to predict difficulties in cash collection, you should be able to manage the banks’ expectations as well.
All the above may sound like common sense, but you would be surprised to find out in how many companies this is not a common practice. If you have decided to handle cost more strategically, here are some simple practical tips on how to do it:
- correctly identify the drivers of cost in your company: ask yourself if there are areas of your company and cost that are destroying value;
- improve the processes around those areas or simply eliminate the cost.
However, you cannot always take out costs quickly, as major projects may be on roll. If this is the case, you could take a more measured approach:
- in the first phase, look at your major project spend and ask yourself what can you do differently; have a look at your supplier agreements, some of them will allow you some space to take long term decisions;
- in the second phase look at your own levels of bureaucracy and simplify procedure to the extend of compliance and operational efficiency;
- in the third phase, re-analyse your project and look for its competitive strength or even opportunities. The business world is moving and, since the first two phases could take from a few months to years, depending on project extend, you could redefine it in terms of new market opportunities.