Situation: A CEO has her company on a positive growth track. The company has a solid customer base. Their products and accompanying services are increasingly well-accepted. She is ready to take the company to the next level of growth and profitability. How do you unlock your true profitability with sound cash-flow tradeoffs?

Advice from the CEOs:

• Profit is different from cash flow. Make this distinction clear and act to boost cash flow.
• Tracking Cash & Forecasting:
  • Watch the company’s bank balance. Frequently track cash inflows and outflows by period.
  • Carefully assess and project the pattern of customer buying habits and payment performance to develop sound revenue assumptions.
  • Compare the company’s margin dollars and billings with norms for peer group businesses.
• Issues to consider in forecasting:
  • Hiring means commitment of future cash outlays. Consider contingent work force options.
  • Project and plan for future large payments (equipment, technology, marketing, loans, etc.)
  • Differentiate between investing in ongoing business capacity as opposed to incremental add-ons.
  • Look at cyclical trends and issues. Understand your customers’ purchase habits and patterns.
  • Develop likely “what if” scenarios (good and bad) and develop plans to reduce the impact of surprises.
  • Analyze the company’s business model and determine exactly how cash flows through the company’s operations.
• Analyze important upcoming decisions: hiring equals investment; outsourcing equals expense. Evaluate needed support for each.
  • Differentiate investment versus outsourcing decisions. Smooth cash flow through selective outsourcing – especially when dealing with sudden or cyclical peaks. Avoid the risk of committing long-term resources by staffing up to address short-term peaks.
• Focus on the opportunity cost of money. Add this focus to both planning and assessment.
  • Operate with a mix of other peoples’ money and ownership funds. The latter are more expensive than bank interest because the trade-off is what you could earn through alternate investments.
• Fine-tune the company’s planning tools. Analyze budget and cash implications of alternate plans through detailed budget projections and follow-up by tracking cash expenditures.
  • Use Cash Flow Statements to analyze and project trends in investments, operations and financing and how each of these affects cash balances.

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