Is cash keeping you afloat or dragging you down?

A full order book is no longer a sure sign of company prosperity. These days, cash in the bank is the only real indicator of success.

In the current pressure cooker economy, the most effective leaders are the ones who have their finger on the financial pulse of their organisations. Leaders have long-term strategies to even out cash flow and flag bottlenecks, whereas managers focus on short-term gains.

Eyes on suppliers not just customers

Leadership also means not focusing entirely on sales strategy, as no company can afford to lose sight of the bedrock of business: cash flow.

Most companies are operating on a knife edge, so your suppliers will not be prepared to wait for their money while your orders are processed and invoices are settled.

Any interruption in receiving payment from your customers can leave the wolves baying at the door if you don’t have cash reserves to fall back on.

Ways to fix cash flow problems

How can you get your hands on cash, if your outgoings start putting your reserves under strain? What can you do to keep operating, when money coming into your business temporarily dries up? Preferably without going cap in hand to lenders.

The options available involve business leaders being proactive and creative, as opposed to managers who react to each new risk.

Assuming the Directors can’t fund the gap, some smaller companies turn to crowdfunding as a solution, raising cash to cover a new product line or project, to ensure it can go ahead. This may involve lower profit margin initially but that may be a good price to pay to get the new thing launched successfully.

All companies should be constantly on the lookout for grants and funding arrangements that can help them out of a sticky patch. For example, export grants are available for certain marketplaces and to encourage SMEs to look abroad. Keeping close to the local chamber of commerce is always a good thing.

Larger companies may have the option of selling their buildings, then leasing them back as part of the sale agreement.

For some companies, keeping supply wheels turning can come from forming buying co-operatives which should increase purchasing volumes and drive prices down. Being really creative, you could get other members of the co-operative to cover a difficult invoice and effectively get a loan from them. The key with this is trust and openness!

Companies can often release money tied up in their inventory – selling off stock that is no longer required or redundant products. Getting rid of them quickly to a third party will mean that you won’t get full value from them but that might be the right thing to do to go in the direction you want.

Prevention is better than the cure

Much of the commercial risk that comes from having no cash to fall back on is better managed by leaders with vision, rather than being entirely led by current business objectives.

If your company finds itself sailing close to the wind in its cash flow, it’s a clear signal to make changes. For example, introducing leaner or more agile work processes, invoicing electronically and speedily, and integrating more into digital control systems.

For more insights and guidance on using leadership skills to manage cash flow risks, contact St Andrews Highway.