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The 7 Critical Levers of Managing & Maintaining Cash Flow

Recently, Petra Coach presented a webinar, “Cash Flow in Crisis: The 7 Critical Levers of Managing & Maintaining” featuring Alan Miltz, co-author of Scaling Up.

If you’re a business leader, you NEED to see this.

You can find the full recording here.

 

To augment the recording, we noted takeaways and tips from the presentation. The slides used in today’s session can be downloaded HERE. Alan is also offering access to Cash Flow Story for 3 months at no cost – register HERE. If you have any issues registering, please contact support@cashflowstory.com.

 

Visual by Kristin Mclane – The Vivid Ink Company

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Top Takeaways

Cash Flow

Definition: Keeping track of the movement every week of the change in your bank accounts

  • Revenue = Vanity
  • Profit = Sanity
  • Cash = King

Seven Critical Levers that Impact Your Cash Flow

  • Price
  • Volume
  • Cost of Sales/Direct Costs
  • Overheads
  • Receivables
  • Inventory
  • Payables

3 Cash Flow Measures

  • Net Cash Flow: the change in your borrowings + the cash at the bank
  • Operating Cash Flow
  • Marginal Cash Flow

Converting a Balance Sheet into a Statement:

  • Your balance sheet, in one sentence, is minus funding equals operations

Two Components of your Operations:

  • Working capital
  • The rest of your balance sheet (Other Capital)

Working Capital consists of three items:

  • AR + Inventory (working progress) – Amount you owe the suppliers (AP)

4 Chapters

  1. Profitability
  2. Working Capital
  3. Other Capital
  4. Funding

Engaging Your Non-Financial People

  • Put yourself in their shoes
  • Listen to them with empathy
  • Take away accounting terminology

 

Listen (silent)

Empathy

Attitude – positive

Decisions

Energize

Resilience

Form a War Room

  • Sales, marketing, operations & finance
  • Meet weekly with these people
  • Everyone in the war room need to understand the numbers
  • Clear financial discussion – profit for the period, revenue, margins – What does the working capital look like? Is inventory climbing? Do we have issues with our suppliers?

The management team is responsible for Profit and Working Capital:

  • Profit – operating profit
  • Profit before interest, taxes & dividends
  • The three items in Working Capital

 

The Power of One

  • The Power of One is the code of your business – it will improve profit, cash flow and value
  • The easy way to do this is by using the provided software & entering in your number
  • By changing 1% in the seven levers, you improve cash flow

 

Steps to Follow

Step 1:

  • Show the power of one calculation up in your war room
  • Post it on the wall 

Step 2:

  • Take sticky notes with the 7 levers down one column and give your team sticky notes of another color
  • Ask them, how they can improve in areas
  • Rank them from most to least important (the biggest bang for the buck)
  • Choose the top 1 or 2 ideas
  • Project and then stress test your options

 

Q&A

Q: What reasonable period length should we stress test for?

A: Start off with your December quarter and your March quarter and then do a projection for June 2020 quarter and stress test their number. Look at these every 90 days.

 

Q: How to request training for management team?

A: Go to the learning center on home page, go under videos. There is a 30-minute video that can be shown to the management team

 

Q: What reports should be looked at Weekly in the management meeting?

A: Look at revenue, product categories, discuss overheads, which overheads you can still attack, receivable days, who is putting pressure on you to pay, key profitability items that are changing.

 

Q: Would you advise against accrual budgeting?

A: Do not use terms like these to your management team, just show them the numbers and explain them. What has happened this week vs. last month. Just do things consistently