Back to Basics – Smart Business Thinking

Back to Basics – Smart Business Thinking

The two “techie” guys are pals and business owners of an Arlington small IT service company. They have been working together for three years.

They started the business  out of a spare bedroom. Although the business grew they were still operating it on the “back of the envelope”. They asked me to work with them on a strategic plan and to help implement and manage it.

We developed the plan, put it into effect and sales and revenue were growing steadily. Everyone was pleased.

During a regular visit it was clear something was wrong. They air was strained and they were barely civil to each other. The usual questions didn’t flush out the problem.

A separate closed-door one--on one with each surfaced the issue. Not enough cash being generated to cover operating expenses and salary.

With the steady growth of their IT services business that didn’t make sense. A visit with the office administrator uncovered the missing link.

The accounts receivables report gave us the answer. “Why are the receivables so high?” An outstanding receivable of more that 30 days may be a red flag of customer cash flow problems. At the very least it is a loan to the customer.

“I’m so busy booking new business I haven’t had a chance to pay attention to the outstanding invoices.” That is a typical dilemma in a fastgrowing company.

Back to basics – we are in business to generate income. Closely watching the receivables account is the key way to achieve that.

Now the office administrator runs a report for the owners every Friday with an explanation of each over-30-day receivable.  The report did not solve the problem by itself – the report focused attention and made them make collection calls.

With cash flowing in the way it should, the two successful techies are pals again.

Bottom Line?

·      You are in business to generate income. Closely watching the receivables account is the first place to look for a cash flow slow-down.

·      Sales are important, however a receivable outstanding longer than 30 days is an alert of possible customer financial problems or a loan to the client.

·      The company is not in the loan business.

·      Keep an eagle eye on the cash flow by setting up a checklist to raise a red flag if income slows down.    

Jim is an expert business coach and a respected advisor to management and financial executives. He draws on his long-term business leadership background to help CEOs grow revenue, increase profits, improve performance.   

Be Prepared Is Not Just For Scouts – Smart Business Thinking

Be Prepared Is Not Just For Scouts – Smart Business Thinking

While studying for my MBA I was in charge of the John Hancock Life's cash management utilizing a string of 500 banks of deposits. The current cash collection system had been developed 30 years earlier and had not been modified since.

Knowing it could use an upgrade using current technologies, I wrte my thesis developing a new system. The tile “Corporate Cash Mobilization in a Checkless Society”. 

In the thesis I constructed a system utilizing available communication and computer techniques. Unfortunately nothing existed at the time and it sat on the college’s library shelves not acted upon until one day I had an opportunity to implement it.

A telecommunications system had been developed for the major oil companies that protected their local retailers from bad credit card purchases. It was based on an inbound 800 number and a database of valid credit cards.

Using that mechanism, I adapted it to information of bank deposits.

•  Each office manager phoned in the total deposit for the day.

•  The collection system was automated through regional banks that started the collection process that evening.

•  When I walked into the office in the morning I knew to the penny every deposit made up until 5:00pm local time and those funds were in the collection process.

By releasing operating funds from compensating balances, I freed $20 million the company used to invest in operations.

Bottom Line?

•  Focus on the real issue. For me the issue was rapid information and a system that automatically acted on the information

•  In this case the answer was developed but outside the industry.

•  Be Prepared recognize potential improvements and develop a response

Jim is an expert business coach and a respected advisor management and financial executives. He draws on his long-term business leadership background to help CEOs grow revenue, increase profits, improve performance.