Turnover is Vanity. Profit is Sanity, but CASH is KING!!

The first 20+ years of my career was spent with leading, and rapidly growing, UK FTSE 250/100 businesses : Morrisons and Michael Page. Turnover is vanity, profit is sanity had been drilled into me relentlessly, but no one ever talked about cash. Why? Well unless you're around the Board Table in a large PLC it's just not your remit.

Then I entered the world of SME's and learnt rapidly about the the final bit, CASH IS KING.

Let me say that again CASH IS KING!!!!

One more time - CASH IS KING!!

It's, by a mile, the most important part of that famous saying. Why? - because businesses fail when they run out of cash.

Let me tell you a story about an IT Training Business. They had built strong offerings in Cyber Security and Cloud. They had had two consecutive years doubling their business, generating incomes in excess of ￡6 million in just three years - not too shabby!

Unfortunately they lacked qualified financial input other than an accountant who essentially kept the basic books for tax purposes. As I began to work with them I developed a sense of dread, their numbers were...vague, inconsistent. Sales were convinced their numbers were wrong, no one could agree on the profit line - it would send any FD I've worked with to an early grave with worry.

My spidey sense tingled and I insisted on seeing the balance sheet - it was a more confused work of fiction than a Jack Snyder script!

I am not an accountant, but I squirreled myself away in an office with the "accounts" we did have to try and figure out what the true picture was. When I got there it was sobering. There was a real risk that we would be unable to pay our internal teams. If that wasn't bad enough (and it clearly was) we would default on the fabulous outsourced trainers who were the businesses genuine USP!

"But we're really profitable." Said the owner - a man born to sell but who often said "I'm not a man for spreadsheets Liam."

"Yes but profit is not cash." I replied. It was an alien concept to him.

Poor cash flow is a killer and there are only a few ways to remedy it:

• Spend less (expense)
• Sell More (Revenue)
• Reduce accounts receivable days – time it takes for customers to pay you.
• Reduce inventory days – time it takes to sell what you’ve bought.
• Increase accounts payable days – time it takes you to pay your bills.

The core problems were:

• Out of control expenses - they were paying for software that they didn't use and for two agreements that had ended! These were cancelled and the owed monies swiftly reclaimed.
• They were allowing delegates to attend courses prior to paying! This was more an issue of poor control systems than anything else. We fixed the system (it didn't hit the sales rate unduly) and chased the owed monies hard. This created the odd issue, but most were only too happy to pay.
• The credit provider they referred students without ready funds to, had us signed up to extremely onerous terms and were regularly late paying us. Reclaiming owed monies gave a rapid boost to cash and engaging multiple suppliers in a tender process led us to much more favourable terms.

In the short term this was hard yards but within a month the cash line was transformed and that ongoing supply of cash allowed the business to broaden its AWS course into other cloud options sooner. These new product lines fired the top line growth further - a virtuous circle.

If you run a SME, particularly one on a growth trajectory, getting this correct should be a non negotiable basic. It's not difficult, it just requires good processes.

Lots of software makes this very achievable, but if this tale sends shivers down your spine and you'd like a simple tool to avoid it just DM me I'd be happy to share.

Have you ever experienced anything like this? What systems do you swear by to ensure your cash flow remains robust? Comment below.

#Training #Recruitment #Finance #Profit&Loss #BalanceSheet #Cashflow

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