The Cash Decisions

Last month, in the October issue, we explored the EXECUTION Decision. This month, let’s wrap up this 4-part series on how a Scaling Up Coach would help a local Edmond management team work on CASH within the 4 Decisions to Scaling Up.

Over 70,000 CEOs across the globe choose Scaling Up’s 4 Decisions every company has to get right: 1- People, 2- Strategy, 3- Execution, and 4- Cash. Their C-Suite level executives are determined to scale up their companies 10x larger when they read Scaling Up.

If you’d like an abbreviated version of the 4 Scaling Up chapters on People, Strategy, Execution, and Cash as a sneak peak, visit my website www.StacyEads.com to request a free copy. No strings attached, just an 8-page PDF. Remember, this Edmond Business column is my community give back to my hometown who has given me so much over my lifetime.

Cash

In 2020, I was honored to coach EO (Entrepreneurs Organization) and YPO (Young President’s Organization) community members from Sri Lanka, Kenya, Los Angeles, Philadelphia, Manhattan, Kansas, and Orange County as they explored how the Pandemic has impacted their Cash Flow.

Both in New York and right here in Oklahoma, it was very clear over the Spring and Summer what companies had at least 60-120 days working capital strategies in their business, and which did not have cash on hand for the rocky road ahead.

Although PPP, EIDL, Main Street Lending, and local community grants came into effect – some were not able to weather the storm for more than a couple weeks, let alone months. Some CEOs I coached had lost 80-90% of their annual income overnight because schools didn’t have May graduations. There are some big dollars in the pomp and circumstance that comes with high school and college grads. It was their key income season for the year, and it couldn’t be made up “later on.”

The two key questions covered within the Cash Decision are:

1. How do you increase your cash flow in order to fuel your company’s growth?
2. How do you continually increase the value of your company?

Growth sucks cash

When you grow, you’re typically adding Costs of Good Sold, additional staff, more physical space, and equipment that can really suck cash fast. You’ve got to have a great handle on your accounts. You need a great CFO, CPA, Accountant, or Business Coach to help you increase your cash flow in order to fuel your company’s growth.

Leading vs lagging

You’ll be looking at your Profit and Loss Statement every month as a lagging indicator like you would a rear-view mirror to see where you’ve been. But at the end of the month, when your financials are run, there’s not much you can do without a magic wand to “go back in time” and correct course. Any report or metric that you only see as a CEO monthly, is lagging.

In contrast, a leading indicator is something you can look at daily – like a front windshield of a car, where you can see the signs that say “curve ahead.” Your leading indicator KPIs (Key Performance Indicators) can act as an activity scorecard that shows if you’ll hit your end of month P&L stats.

You should be sitting down with your Executive Leadership Team weekly to go over leading indicators. And you’ll be standing in Daily Huddles to go over your leading daily activity metrics that show whether all teams are putting forth their best effort each and every day.

Here’s an easy example: End of month Revenue is a lagging indicator of how much you sold that month. However, the number of sales calls, appointments made, contracts written, pipeline dollar figure filled, and sales close ratio are all leading indicators of whether you’ll sell the revenue level you need that month.

Income is merely vanity

Some common mistakes we see as coaches are saying you’re a $1 Million dollar firm (in revenue), when you only retain $1 at the end of the year in your bank account – and not really knowing the difference. Or worse yet, you have racked up a lengthy list of debt on assets like trucks and machinery because year after year, you use your late December books to avoid paying taxes rather than avoid going out of business (which should scare you more than the IRS tax table).

To learn more on this topic, I highly recommend Greg Crabtree’s book Simple Numbers, Straight Talk, Big Profits. Another common mistake to avoid is not paying yourself a going rate or average wage as the Owner / CEO. If you’re operating without a set salary, Crabtree’s book is a perfect guide to avoid these mistakes.

Profit is sanity

The faster a business owner and CEO can focus on sustainable profit, the faster they can grow their cash flow. Profit is where an Executive Leadership Team’s sanity is maintained, with lowered stress levels. Auto dealerships won’t even track or speak in terms of sales and income because of their squeaky low margins. Their Executive Leadership Teams solely focus on gross profit and net profit to stay keenly focused on the end goal.

Cash is truly king

Having a strategy to selectively stockpile for downturns in the market, slow seasonality, or slumps in your industry can only be enhanced from a strategy that focuses on profitability. The bottom-line profit is much more important than the top line revenue/sales figures.

Many companies who had a great cash position going into the Pandemic, are in a market-dominating position to buy assets, machinery, and even whole companies on the cheap. Mergers & Acquisitions, often called M&A have not stopped during COVID-19.

These Cash-positive companies are also able to take advantage of the labor market being flush with great candidates over the Spring and Summer after furloughs and layoffs. They actively gobbled up terrific A Players for their teams.

Cash acceleration strategies

If you’re unclear how to change your Cash position, start with learning and tracking your Cash Conversion Cycle. Sit down with your Coach or Executive Leadership Team to brainstorm ideas on how to Make each section of your cycle better, quicker, or faster.

I coach my clients through an exercise to find ways to improve your Sales Cycle, your Make/Production/inventory Cycle, your Delivery Cycle, and your Billing and Payment Cycle. In each category, we look for ways to shorten the cycle time so your business can get the sale faster, or get the invoice paid faster. We look for ways to eliminate mistakes in each area of your business to expedite getting your hard-earned cash into your hands quicker.

We also brainstorm ways to improve the overall business model – such as recurring revenue, client pre-payments, and ACH bank draft or automated credit card processing contracts with clients.

Power of +1

There are 7 Levers you can pull as the CEO or CFO of a company to increase your Net Profit and enhance your Cash Flow position. At Scaling Up, we have an online software tool that can take 3 years’ worth of P&L statements to convert them into a dynamic Power of One app.

We can play with the concept of increasing your prices or volume by 1% to see which is better. Should you sell less at a higher rate, or sell more at a smaller rate? Sometimes producing more widgets at volume, only serves to increase your expenses at low margins – and doesn’t have the high impact on the bottom-line you’re hoping for.

We can play with the concept of decreasing your COGS (Cost of Goods Sold) versus laying off staff. We tinker with what Net Profit impact is created if you lower your Accounts Receivable or increase your Accounts Payable.

Even a 1 Day difference in Payables or Inventory Turns can make a huge difference on your Cash Conversion Cycle, and Cash Flow story.

The Universal CASH Principles

I’ve been blessed to coach the CASH Decision to companies in Canada, Colorado, Missouri, Kansas, and my home state of Oklahoma. The principles are universal to a variety of industries including Edmond Churches, Software as a Service (SaaS), Global Manufacturing, Marketing Agencies, Law Firms, B2B Service Providers, Automotive Dealerships, and Energy sectors.

These principles work anywhere in the world. I often facilitate quarterly strategic planning retreats throughout North America teaching executive leadership teams all 4 Scaling Up Decisions in both the United States and Canada.

Originally, I deployed best-selling author Verne Harnish’s Scaling Up book and toolsets when I ran a Metro-area software firm over the last decade, including the Scaling Up One Page Strategic Plan, and 10 Rockefeller Habits checklist. I don’t just teach the Cash Decision – I’ve lived it, day in a day out while I was an Oklahoma Most Admired CEO.

I became a Certified International Coach because I loved the idea of sharing the tools with other CEOs, like I do in this monthly Edmond Business column. In the coming months, we’ll explore each of the other Scaling Up Decisions.

• People
• Strategy
• Execution