How Do You Manage Cash Flow and Growth? Five Thoughts

Situation: A company faces dual challenges – assuring that payments are collected for work done and developing a business model that facilitates growth. How do assure that payments are collected to support your cash flow needs and that employees are focused on growth?

Advice from the CEOs:

  • It may be that the two problems are closely related. Ask whether your compensation and incentive system is focused on cash flow and growth. If not, you need to change it.
    • Restructure your compensation and incentive systems to create a direct link between profitability and compensation. Augment this with training. For example, if your engineering team isn’t good at assuring that change order costs are paid by their clients, teach them how to write statements of work to anticipate change requests and to include charges in the SOW. Then tie the team’s compensation to how well team members follow though in assuring that work is properly accounted for, billed, and payment collected.
  • Create simple procedures that are innate and complementary to team members’ natural behavior. The best way to do this is to involve them in the writing of the procedures.
  • Give them easy tools that take the guesswork out of negotiating change orders with clients. For example, if a client asks for faster delivery, give them a formula that ties delivery to cost::
    • Standard Delivery = 8 weeks at Price X
    • 4 Week Delivery = Standard delivery price times Y
    • 2 Week Delivery = Standard delivery price times Z

This turns client demands into a simple economic question – what is expedited delivery worth to you?

  • Hire a contracts manager to track contracts and change orders with authority to assure that change order costs are being billed.
  • Create “learning” teams to develop solutions. Allow the teams to speak to each other and to learn each other’s best practices. Supplement this with regular tutorial sessions to bring the whole group up to speed on new technologies.

2 thoughts on “How Do You Manage Cash Flow and Growth? Five Thoughts

  1. EUSTACE PETER DSOUZA

    Very valuable inputs given.
    Lets focus on CASH FLOW:- There could be other reasons for delayed payments like (1) dissatisfaction with the quality,quantity or price. (2) The payment terms are not clearly stated (3)The buyer was not correctly identified (4) Clients are in the habit of giving post dated cheques etc

    If we look at GROWTH there a many pitfalls. (1) Introduction of a line extension if a PRODUCT does extremely well. (2) Entering a new SEGMENT without assessing internal capabilities (3) Expansion in low margin segments etc

    Regards

    Eustace Peter DSouza

  2. Sandy Post author

    Great Comments, Eustace.
    You are indeed correct that there are many reasons why cash flow is log and growth, if not strategically planned, can lead to problems. In the case outlined, the CEO knows that when customers ask for change orders his staff is very agreeable but reluctant to charge for these. He needs a solution. Some of the possibilities that you raise may also be playing in the background.

Leave a Reply

Your email address will not be published. Required fields are marked *

Sign in with Twitter