The superpower of being “1% better” to unlock hidden cash flow and drive business growth

Do you want to uncover internal financial resources to fund investments and achieve development goals, without relying on external capital? By doing so, you can avoid sacrificing your independence and having to meet the conditions imposed by financers. For an owner or CEO, ensuring that your company’s economic engine has the necessary fuel–enough money–to run productively and profitably is a critical responsibility. While employees play a decisive role in contributing to this process, the company leader is ultimately accountable for overseeing cash generation.

Every operational activity in your business has an impact on cash. Which operational activities consume, create, delay, or accelerate cash? Inefficiencies, inventory mismanagement, a poor supplier, and bad staffing choices all present potential cash losses. When you begin to view every operational element of your business as cash, and encourage your employees to do so too, it allows you to think creatively about how you can generate more of it from within your organization.

As an entrepreneur and leader, your goal is to train and empower employees to consider every function of the company through the mental lens of monetary–whether measured in euros, dollars, pesos, precious metals, or Bitcoin. When this approach becomes a habit, it paves the way to maximize your internal cash resources.

The “Power of One” approach

The “Power of One” is a strategic framework to help you accelerate your cash flow quickly and easily. Developed by Alan Miltz and Jos Milner as an integral part of their Cash Flow Story program, this approach focuses on seven key factors to systematically improve cash flow: price, volume, manufacturing costs (COGS), inventories, overheads, receivables, and payables. The overarching idea of “The Power of One” is to aim for a 1% improvement in each area.

Let's take a look at an example of a small German construction company with 30 productive employees in 2021. The table below illustrates key items from their income statement, demonstrating how using the “Power of One” approach led to major financial improvements.

With the firm goal of being 1% better in mind, creative thinking, and disciplined action in each item of the income statement, the team achieved a significant increase of 131,577 monetary units in cash resources and a 29% increase in the EBITDA result.

Leverage points for achieving a cash flow increase

By focusing more on the idea of becoming 1% better, several interconnected ideas can unfold that are worth developing and testing. Here are some ways you can get started with a productive team brainstorming session:

Revenue: Increase the price per unit of a product or service sold by 1% or increase sales volume by 1%. Consider how this could be realized. It may involve redesigning your product or service portfolio and adjusting its price structure to better meet future customer demand and benefits. What could you add, what could you remove?

Material: Can you improve purchasing conditions with your current supplier, such as optimizing purchasing frequency, volume, and payment terms? Are there alternative suppliers offering better terms for the same quality? Can you reduce material consumption through smarter design? Or can you improve the work process to reduce rejections and waste?

External services: Can you reduce external services expenses by doing them internally? Are there other providers that offer better terms and a more efficient collaboration? How can you improve cooperation with existing partners to reduce effort and costs?

Personnel costs: Consider how changes in subcontractor cooperation can optimize the workforce along the internal value chain. This does not necessarily mean laying off employees, but ideally, it will free up resources to improve production and ultimately, sales. Otherwise, this may lead to fundamental questions such as: Do we have the right people in the right roles?

Operating costs: What do you need today and in the future to operate your system? Do you really need the inventory you have today? Check your overheads such as rent, utilities, insurance, etc. Where can you make slight savings and improvements without compromising quality, while making more cash available in operating processes?

Atmosphere of experimenting and learning

By committing to being 1% better, the chances of discovering and benefiting from more sources of cash are enormous. Your team, who are at the heart of operations, are the best source of ideas for finding savings.

Bring your team together, give them the opportunity to unleash their creativity, and embrace all ideas without reservation. As a CEO or manager, don't be the first to share your ideas. This way, you won't limit your team's idea potential. Be open-minded and keep the idea process as open as possible, letting your team know that nothing is too big, too small, too bad or too crazy.

1-2-3-4 - Find and benefit from hidden bar resources

This framework will help you to do this in four simple steps:

1. Write down all ideas on index cards or sticky notes.
2. Each team member presents their ideas to the team.
3. Put all ideas on a whiteboard or large sheet of paper and sort them. Collect all contributions! The idea of this process is to generate and collect as many ideas and suggestions as possible.
4. Work systematically with your team to refine and develop ideas to implement the best solutions in initiatives, projects, and tasks. To test the selected ideas, assign dedicated team members with the targeted development of the ideas, calculating the annual financial impact. If the ideas still seem promising, start the first pilot’s actions immediately to learn, improve and profit quickly.

Recap

Utilized cash resources are available in your business system. If you are willing to improve, you will find money! Start working with your team to make this exercise a regular (quarterly) business improvement activity!

Good luck and I would love to know how it goes!

Dirk

:::

Do you find leverage points to improve your business?

TAKE ACTION!

Get started today by taking the compact?7 Attributes of Agile Growth? Assessment.

It will provide insight into the highest leverage points for growing your business. Plus, it comes with a 45 min conversation about your results and opportunities.

:::

#Leadership #LeadershipCoaching #Management #ManagementConsulting #ExecutiveCoach #BusinessAdvisor #BusinessConsulting #BusinessCoaching #BusinessGrowth