Money money money!

I tend to believe that I had the Cash position of my company pretty much under control. But I have to say that Denmark also has created a solid cash culture that makes management of Cash a lot easier. Most invoices I see have a payment term of about 8 days here. And if you pay too late, there is a fine and a lovely, but firm lady on the phone immediately, because paying too late is simply not done in Denmark. Do you agree? Try to picture what it means if everybody just pays and on time…?

One thing the founder of one company in The Netherlands, will always stick to me. He motivated everybody to Make Shitloads of Money. Can you say this? Or is it maybe something that you don’t say loud, but only think for yourself? Well… he shouted it of the roofs! Why? Well… with shitloads of money you are in the position to do good.

Anyways… We had a clear Profit/X in the company. I knew exactly the performance on each level of the company with this indicator. And for the Cash position the Gross Profit Margin per project was important in the line of business we did. The Power of One (read below) was, although we didn’t apply it in full, as we do it for our customers at ScaleUp Company, really made a huge impact. By tweaking a little, the effect was sometimes significant.?

Forecasting was really the name of the game… If we applied all the indicators in our forecasts, like for example the seasonality of getting people to work for us, we were able to start the right actions at the right time. If we did this well, we really squeezed the budgets at the right moment and therewith ending the year in an optimal way.?

Being able to manipulate your cash position is a lot of fun!

Scaling up your business is one of the most exciting and challenging stages of entrepreneurship. Growth brings new opportunities, but it also comes with increased responsibilities—especially when it comes to managing cash flow. If you’ve been through the ups and downs of running a business, you know that growth can feel like you’re trying to sprint uphill. It’s thrilling, but it’s easy to run out of steam (or cash) if you’re not careful.

From my years of experience helping businesses scale, I’ve seen that managing cash flow is often the make-or-break factor. You can have a killer product, an eager market, and a hardworking team, but if your cash flow isn’t under control, the wheels can come off quickly. Let’s dive into some practical, real-world strategies to manage cash flow effectively, inspired by insights from Verne Harnish’s book Scaling Up and proven best practices in the industry.

Why Cash Flow Matters More Than You Think

It’s easy to get caught up in focusing on revenue, but the truth is that growth sucks cash—it’s one of the fundamental laws of business. Cash flow isn’t just about keeping the lights on; it’s about having the financial flexibility to make smart decisions, grab opportunities, and weather unexpected storms. As Jim Collins famously put it in his book Great by Choice, successful companies keep more cash on hand than the average business, and they start doing it early. This financial buffer gives you the breathing room to grow without getting bogged down by debt or short-term crises.

1. Know Your Cash Conversion Cycle

One of the first steps to mastering cash flow is understanding your Cash Conversion Cycle (CCC). This is essentially how long it takes for cash to make its way back into your pocket after you’ve spent it on things like inventory, payroll, or marketing. In plain terms, it’s the timeline of turning investments into cash.

To improve your CCC, focus on these key areas:

• Accounts Receivable: Get paid faster. Offer incentives for early payment and tighten up your credit terms. It’s crucial to reduce the lag between invoicing and receiving payments.
• Inventory Management: Don’t let your cash get stuck on the shelf. Use just-in-time inventory practices where possible, and keep a close eye on slow-moving stock.
• Accounts Payable: Don’t rush to pay your bills early unless it offers a significant discount. Take advantage of the full payment terms offered by your suppliers, as this helps keep cash in your business longer.

By tightening up each of these areas, you can shorten your cash conversion cycle and keep more cash flowing through your business.

2. Forecast, Forecast, Forecast

Forecasting isn’t just a financial exercise; it’s your roadmap for navigating growth. A cash flow forecast helps you predict when you’ll need cash and how much you’ll need. It also highlights potential shortfalls so you can take action before they become problems.

When creating a cash flow forecast:

• Look ahead at least 12 months: Focus on monthly projections that consider your expected income, expenses, and any big one-off costs, like new hires or equipment purchases.
• Factor in different scenarios: What happens if sales slow down? What if you lose a big client? Preparing for different outcomes allows you to be ready for whatever comes your way.
• Update regularly: Your forecast should be a living document, updated as your business situation evolves. This keeps you agile and prepared.

Forecasting is like having a GPS for your business. It won’t solve your cash flow problems, but it will help you avoid getting lost.

3. The Power of One: Small Tweaks, Big Impact

Verne Harnish’s Scaling Up emphasizes “The Power of One,” a concept that highlights how small changes in your business can significantly impact your cash flow. Here are some levers you can adjust:

• Pricing: Even a small increase in prices can improve your cash position dramatically without needing to sell more units.
• Volume: Boosting your sales volume through upselling or bundling can improve your cash flow without increasing overheads proportionately.
• Cost Control: Tighten up on variable costs like shipping, supplies, and other operational expenses. Regularly review and renegotiate supplier contracts to ensure you’re getting the best deals.
• Collection Days: Reducing the time it takes to collect cash from sales, even by a day or two, can have a significant impact on your available cash.

These incremental adjustments may seem small, but combined, they can lead to substantial improvements in your cash flow.

4. Keep an Eye on Profit Margins

While managing cash flow, it’s easy to get tunnel vision on sales and forget about profitability. Scaling up shouldn’t just be about selling more; it should also be about selling smarter. Are your products or services priced correctly? Are your margins sustainable?

Keep a close watch on your gross margin percentages. A slight dip might not seem like much, but over time, it can erode your profitability and squeeze your cash flow tighter than you realize. Always aim to maintain or even improve your profit margins as you scale.

5. Secure Financing Before You Need It

One of the golden rules of cash flow management is to secure financing when you don’t need it. Banks and investors love to lend to businesses that seem like they don’t need the money—that’s when you’re in the best position to negotiate favorable terms.

Consider setting up a line of credit or maintaining strong relationships with lenders, even when your cash position is strong. This proactive approach ensures you have access to funds when opportunities arise or when you need to bridge a short-term gap.

6. Don’t Neglect the Basics: Monitor and Review

Last but not least, regularly review your cash flow. Weekly or even daily updates on cash inflows and outflows can keep you on top of your financial health. Use dashboards and reports that highlight key cash metrics, so you’re never caught off guard.

Becoming complacent with cash flow management is one of the most common pitfalls I’ve seen in scaling companies. The businesses that thrive are those that stay on top of the numbers, constantly fine-tune their approach, and aren’t afraid to make adjustments as needed.

So!

Scaling up is a thrilling ride, but it’s not without bumps along the way. By paying close attention to your cash flow and implementing these strategies, you’ll give your business the best chance of navigating growth successfully. Remember, cash is the fuel that keeps your business engine running. Manage it wisely, and you’ll have the stability and confidence to reach new heights.