Can you name the 5 key levers of your operating cashflow?
So far, we have covered Leadflow.
This week, we get in to Businessflow, and we’ll be starting with finance.
Like sport, business has a scoreboard and you must understand it if you are going to win.
Every activity in your business will end up in a number somewhere, and those numbers will always end up on your balance sheet. So, it is vitally important you understand your financials.
That scoreboard is Finance.
You want brutal honesty about how your business is going?
Look at your figures.
You can talk big to your friends and you can tell your clients you’ve made 7 million dollars so far this year, but the numbers don’t lie.
They are the final scoreboard which reflects all the decisions you’ve made in your business.
If your figures are strong, you’ve made good decisions. If not, you haven’t. It’s that simple.
The three key scoreboards you need to thoroughly understand – in no particular order – are, profit and loss, the balance sheet and your cashflow.
If you don’t continuously look at these and understand finance – which is the language of business – you are in trouble. Business is an intellectual sport. This tells you if you are winning or losing.
How are you running your business if you don’t speak this language?
Imagine a pilot who walks into the cockpit and says, ‘What are all these dials for?’ It would be concerning, for sure right? So, as the captain of your business, do you look at your financial documents and say, ‘What the hell is this?’
If you do, this needs to be right at the top of your list of problems to remedy – now! You need to understand your break even, gross profit, cost centres as a percentage, and what your balance sheet is telling you as a minimum. Your balance sheet tells you the truth – the cold hard truth – about every decision you have made in your business to date. From day 1.
Not many people understand that.
It’s a mirror. Look into it.
So, what are the 5 levers to operating and optimising your cashflow?
My mentor of many years has instilled in me the importance of optics and levers and ultimately the importance of numbers in a business.
There are five key levers when it comes to influencing the critical numbers that ensure you are building operating cash flow, which is non-negotiable for a thriving business.
This is what knowing the numbers is all about.
If you don’t know these figures in your business, there is no way you can make informed decisions.
Operating cash flow is the ability of the business to convert profits into cash.
This is what we usually simply call profit.
Operating cash flow is needed to surge into the future and execute on the plan. Without free operating cashflow you won’t get into the future. You’re constantly fighting the battle of now, of having just enough cash in the bank. You must always be growing money in the bank and growing your operating cashflow.
This is all part of productivity.
The five key levers for operating cash flow are:
- Sell more
- Spend less – as a percentage of revenue
- Ensure that accounts receivable days are decreasing – getting the dollars quicker
- Reduce inventory days
- Increase accounts payable days.
Within those five levers are myriad of strategies and themes for constant growth in becoming a benchmark business.
Make sure you are pulling at all the levers and constantly being across your numbers. They are two of the MOST critical parts of running and owning any business.
Next week, we will continue discussing the 5 levers for operating cash flow.
Power to you!
CEO, Business Benchmark Group
Looking for a business coach? Find out more about the Board of Directors 12 Business Coaching Program.
Stefan Kazakis on 5 May 2018
Responding to change is a critical part of the culture and operations of the business. You, your team and your business must be agile and flexible. ...Read more