Industry consultant Warren Tapp speaks of the value of discussion on cashflow, leading to benefits in both financial management and future planning.
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Many directors monitor revenue and profit, and so they should. What should be talked about more is cashflow. This is the way to bulletproof any company.
Three familiar names understood this, and it provided the success they achieved. They are: Steve Jobs from Apple, Jeff Bezos from Amazon, and Warren Buffett from Berkshire Hathaway.
They all understood that a focus on cashflow was the key to success. Not just because it ensured the business was always solvent, but because it created extra cash that they reinvested in their company to grow even larger, and quickly.
Strong cashflow provides certainty financially and avoids the domino effect of delayed payment of creditors and potential insolvency.
I have seen companies with huge amounts of old inventory, aged debtors at 120 days still owing them money, and little control over expenditures. If directors focus on always maintaining liquidity it allows time to seek better revenue and profit, and eliminates ambiguity.
This may mean such things as reducing inventory, speeding up customer payment times, negotiating longer supplier payment terms and having flexible banking facilities. It certainly means reviewing a cashflow forecast out to six months from now to see a likely closing bank balance at the end of each month.
If you are looking for further investors for the company or a better deal with your bank, then talk free cashflow. It is not only earnings or revenue; free cashflow is also what they look at. With strong cashflows you can look for opportunities to invest more back into the company or start to grow by acquiring other businesses. You are then deploying and multiplying cashflow.
If you want to bulletproof your company, have an in-depth discussion about how to improve your cashflow.
Warren Tapp
