Cashflow management is a critical issue for many business owners.
Typically, your cashflow comes under strain in the following circumstances (not an exhaustive list):
- your business is growing
- stock levels increase (eg: lead-up to Christmas for retailers)
- bringing on new staff
- increasing production capacity
- diversifying your business activities
Each of these things can be a “cash thief”.
Let’s consider the issue of inventory(stock) management. The more stock you have on hand, the more cash you have tied up. I explain this in more detail here, here and here. By reducing your stock levels, you free up a lot of cash, however you need to balance out the level of stock you need. You cannot sell what you don’t have! Effective stock management makes a huge difference to your cashflow.
Cashflow management can also be impacted by increasing production capacity. Being able to make a lot more “stuff” requires you to have the raw materials, equipment and people to do this. All this costs. Your wages come in each week, your suppliers need to be paid each month and the equipment needs to be purchased/financed. All this robs cash from the business – and you haven’t yet produced anything you can sell. By building your capacity, you will be able to (hopefully) generate more sales and/or better margins. But you have to spend first. This is where your cashflow management needs to be carefully curated.
A number of our customers have pretty regular sales. They use this to reduce their margins (sometimes!) to generate additional sales and hence cashflow. You find that there is a very clear cycle for this.
One of my favourite fishing tackle stores is in Melbourne. They have a great range of products, know what they are on about and provide great service. Over the past year or so, I have noticed that they are having regular sales in the sixth week after the end of each quarter. This is because they have the Tax Office commitments to meet. They need to free up cash to pay our friends in Canberra. Knowing this, you, as a customer, can manage your time for purchasing gear.
The same thing occurs in a lot of businesses (especially retail). Have a look at the sales cycles and you will see a trend. The margin is better in your pocket than the retailer’s!
Any time you look at the cashflow in your business, get behind the issue to find out what is driving it. Sales too low? Margins being squeezed? Inventory too high? Expanding? Diversifying? Any and all of these can have a significant impact on your cash reserves.
Cashflow management can be difficult. But when you look behind the numbers and develop your understanding of what drives your cashflow, you will be in a far better position to make the decisions and changes needed to improve things.
We have access to some really powerful cashflow modelling tools that will enable you to see the real picture – going forward. If you would like to have a chat with us about how we can help you get a better handle on your cashflow management, give us a call!
Speaking with one of my crew recently and he made the very sage comment with regard to a strategic issue we’re dealing with at the moment:
It’s a case of addition by subtraction
I’d never heard this phrase before and I asked him for a translation. The guts of the issue is that you can often get a lot better by removing things that clog you up or hold you back. In effect and expanding the analogy, the removal of a cancer has a positive impact on your health!
This can the in the form of processes, procedures, people, clients or whatever.
Thinking further about that phrase, I realise just how powerful it is – often times you become more welded to the process or context rather than focusing on the outcome you’re striving to achieve. It can be that you’ve always done “stuff” so you keep doing it, your loyalty to people (as staff or customers) or a supplier with whom you have dealt with for years makes you unable to see beyond your own version of reality.
You become blind to the issue and don’t take action when you really know that you should.
Reading “Leading Teams” by Ray McLean has alerted me to the fact that, as leaders, we need to listen to the feedback from our people (and our gut) when things start going wobbly. It is also imperative that action is taken sooner rather than later to deal with the issue.
We recently had an issue where we changed suppliers in our business. The effect of the change has been revolutionary – we’re getting better service, more personalised information and tailored reporting for our needs. We’ve also gained access to a truck-load more options that were available through our previous supplier that, for whatever reason, they had decided to withhold from us. This has enabled us to increase our offering and provide a greater range of solutions to our customers than were were able to before – not because they weren’t there, but because they weren’t made available to us. Outcome? Far more sales for us and our supplier, happier customers and better outcomes for all concerned.
We have subtracted, and it has lead to addition.
Similarly, over the years, we have found that where there is a change in staff, the outcome can be exceptionally positive. I recall once occasion in our business where we acted too slowly to remove a “cancer” from the business. By not acting more quickly, the damage they created was significant and took some time to repair. I must admit though, that once they had gone, the reflection with the rest of us was “we should have done that sooner”.
Due to our loyalty to them and wish for the person concerned to take the opportunities to develop and become the best version of themselves, we stayed in the situation far too long. It ended up that their best version of themselves wasn’t what we needed/wanted!
Can you see opportunities for addition by subtraction in your business? Are there areas where you’re “blind” and unable to see beyond your version of reality?
You are not alone.
You can do something about it.
And so it all begins again.
The past year has been an “interesting” one on a number of fronts and we have seen some of our customers make significant progress in a range of areas. Their progress has been due to some detailed planning, decision-making and accountability across their organisations and it is exceedingly pleasing to see the results that reward the consistent effort they and their teams have put in.
The major notables can be summarised as follows (and this is not an exhaustive list):
- clarity around the “why” of the business;
- effective communication with and engagement of their teams;
- focus being driven in the areas of their business that offer the greatest opportunities (niche);
- planning, implementation of the plan and review of results against expectations; and
- being prepared to try new things and approaches.
Funny isn’t it – the things that have delivered terrific outcomes for business are the things that everyone knows that they need to do? So, why don’t they do it? I call it being uncomfortably comfortable – you’re OK, you know things can be better, but you’re pretty comfortable and don’t want to stop being comfortable.
This issue is one we constantly battle with in discussions with customers who we know can be better – they are so busy being operational, they forget/avoid to be strategic. And they are comfortable.
In many respects, they have traded off their vision and focus on purpose to being servants of something that doesn’t really matter to them – because it’s easier. It is also far less fulfilling.
In one of my discussions with a customer prior to Christmas, he came in, sat down and said “I’m just really happy”. This same customer has undertaken some massive changes in his business – all as a result of effective questions, looking at the broader economic environment and considering what he really, deeply values and where his skills lie. He has brought his team along with him. He and his business are now far better, more agile and responsive than they have ever been. And they are ideally placed to take advantage of the changes that are going on in their industry.
In the current environment where there is so much disruption going on – across nearly every industry, the need to adopt a more strategic approach is essential. The commitment to do this can be hard and challenging, but it is necessary to enable the business to thrive and continue to deliver on what it is there to do. Avoidance of the work required will see you wonder why you can’t seem to keep getting the results and outcomes that you desire.
On Saturday morning, I was invited to do an interview with some guys in the USA about what advisory work should look like – it will be up on a podcast in a couple of weeks. The guts of the discussion really turned on the fact that, as a business owner, you need to ask better questions. The types of questions that really dig into the opportunities and challenges that confront your organisation. By thinking about and answering these “better” questions, you then create a planning template which can be implemented in your operation to make sure the changes that are required actually get done.
The New Year promises to be a challenging and exciting time for all of us. There is a lot of stuff going on the world at the moment which, whilst remote from Australia, will have an impact on us. Things like the slow-down in the Chinese economy, the migration issues within Europe and the coming Presidential election in the USA. Each of these things can have an impact on your organisation (believe me, they do) and you need to consider how you’re placed to take advantage of the opportunities that do present themselves.
By way of example, think about the issues going on in China at the moment. The well-reported slow-down of their economy is unlikely to directly impact on you unless you are exporting into that market. However, the impact of that slowing economy will be felt in Australia through lower export demand, greater uncertainty and a loss of the confidence that “China is there” that has supported the growth of our economy over the past decade or so. We have seen the impact of the downturn in the mining industry over here. What was once “boom time” is now not so. The flow-on effect of this has had a marked impact on a number of regions around Australia. It is impacting on home prices (did you know that the banks have a number of postcodes where they won’t undertake any mortgage lending?), employment levels and subsequent demand for goods, products and services. This challenge then flows out beyond those regions into the organisations that support the businesses that were operating at “full tilt” in those regions.
Consider the impact on the airline industry – fewer jobs and increased closures of mines means fewer fly-in-fly-out employees. The airlines have specifically geared up to deliver the services required to meet the FIFO demand from the mines – now, much of that equipment is sitting idle and/or being used far less. This means that the airlines therefore have less cashflow to support their commitments for the planes, staff and support crews. They can either try and get rid of the excess capacity, or pass the increased costs through to the other customers through less discounting/higher pricing. Have you noticed how there are fewer discounts being offered of late? I’m not blaming everything here on the Chinese economy, but I am trying to demonstrate how a global event that seems far-removed from your operations, can actually have a trickle-down impact on your business.
Over 2015, those organisations that have thought further and harder, who have asked themselves the challenging questions and have gained greater clarity about not only their operations but the industry they work in and the broader economic environment have flourished. Because they have done the work.
How are you placed for 2016? Are you prepared to ask yourself the right questions (or, better still, do you know what questions to ask?) to create the outcomes you desire? If you’re not, then you might well be bound to repeat the success or otherwise of the past year.
One of my favourite quotes come from Albert Einstein:
To make the coming year as effective as possible in delivering things that really matter to you, please don’t go insane! The change in approach is challenging and requires work, but it actually isn’t that hard. You just need to make up your mind to do it.
Everyone I know dreads annual staff appraisals – management and (especially) staff.
We’re just going through the process at the moment and it’s going pretty well. Some robust discussions going on and issues raised (both ways) which have highlighted some things that I need to do to enable my crew to work more effectively and to remove some of the “speed humps” that interrupt the normal flow of things in and around the office.
On Thursday afternoon though I did realise that the most valuable thing we do with our crew is not put them into boxes. We don’t classify them, we don’t worry too much at all about hierarchy and, where people extend themselves, we reward them on the growth an development they have demonstrated. We challenge them and push them outside their comfort zones as it is only by doing this that we and they can fully appreciate the talents and skills that they have (Trimetrix helps in identifying these things – massively).
A fundamental part of our approach is actually to de-categorise people as much as possible. This does present its own layer of challenges but, by allowing people to identify their preferred areas of work and the things they would like to do, we are removing the barriers that can hinder their development. These barriers, when not addressed, develop into bigger issues which eventually become frustrations and lead to disengagement and significant negative influences on culture.
How many times have you heard people describe themselves and/or their roles as “I’m just a …”? This, in my opinion, is terribly sad. The story behind this phrase is that they are unhappy and unfulfilled in their roles and would like to develop more but there are hurdles for them to overcome. They might have tried for a number of years but, in the end, they’ve just given up. What a waste.
The further indicator of the “… just a …” is that they have been and/or have seen themselves as being classified or placed into a particular sort of “box” within the organisation. This smacks of the managers in an organisation not wanting to get to know their people as human beings. They are treated as cogs in a machine that chugs along doing tasks and delivering outcomes without any great sense of purpose or meaning. They probably do not see their contribution as being meaningful or valued. How terribly sad.
I believe that people are inherently better than this. I believe that, where you offer the opportunities and support for people, they can grow and excel beyond your expectations (and, more often than not, their own). But this takes trust, courage and a willingness to be open to failure. Things that can be an anathema to many managers and business owners!
The staff appraisal process is but one step in the development of people – feedback needs to be constant, encouragement needs to be genuine (and regular) and discussions about what, where and how your people want to go/be/become need to be the core of the communication with them about them. In a lot of businesses that I have worked with, discussions like this happen rarely, and, in most cases, never happen.
One of the discussions we had was with Jane (our admin guru). She is an absolute star and contributes in many ways to the results the business achieves and the culture within the organisation. We were talking about her role and where she sees it developing. Did she want to go more down the accounting route (which she has been doing) or work back into the more admin side of things? She wasn’t sure. What we know is that she is incredibly capable of operating in either (or both) roles – at the end of the day, were trying to work out with her where she would ideally like to be – a spot that will allow her to use and develop her skills and give her the satisfaction that she likes (craves?).
So, after some really positive and open discussions about what was needed, where she would like to be and what was coming up that is going to require people to take ownership for some outcomes, we decided that we would make no decision. We would “suck it and see”. In reality, we decided to make no decision as to do so would be to place limitations and restrictions on Jane that wouldn’t be good for her and therefore, wouldn’t be good for anyone in the business.
No good squeezing someone into a box that they don’t want to be in.
And that’s when I realised: The only time you put people into boxes is when they’re dead.
It’s funny – most businesses feel like they are operating in an environment where chaos reigns.
The sad thing is, most businesses do not understand that, until you get to about 20 employees, chaos is actually a natural state of being.
The good news about this fact is that when you’re aware of it, you can plan for it.
James Fischer wrote “Navigating the Growth Curve” (Growth Curve Press, 2006) following his research of (then) 600 businesses that had grown and developed. He found that there were some very common issues that those businesses faced and that, armed with this knowledge, other businesses could predict and plan for the issues that would accompany their growth.
As a consequence of his research and writing, Fischer and Laurie Taylor from FlashPoint! developed the Growth Curve program and this has been picked up and tailored for ease of use by Targeted Training International in the US.
We first came across the concept some three years ago and have now adopted the program as part of our offering to our clients. We’ve rolled the program out to a number of our customers in the past 18 months and the results have been sensational.
So, the chaos bit? Well, the table below shows the findings of the five top challenges for businesses at the various stages of growth. Some businesses will face some different challenges, however, based on the research, the following are the most common issues businesses face as they grow:
|Stage 2||Stage 3||Stage 4||
|1-10 staff||11-19 staff||20-34 staff||35-57 staff||
|Cashflow challenges||Improved profit design||Employee turnover||Improved profit design|
|Limited capital||Improving staff buy-in||Project management and resource co-ordination||
Chaotic periods destabilising things
|Hiring quality staff||Unclear values||Vision for future growth (Where? How?)||
Lost knowledge when employees leave
Slow getting new products/services to market
|Communication gap (leaders – staff)||Culture resistant to change||Difficulty diagnosing the real issues impacting growth||
Difficulty forecasting problems in advance
|Expanding sales||Communication gap (leaders – staff)||Slow in getting systems and procedures implemented||
Copyright – 2013 FlashPoint!, Origin Institute & James Fischer
When you review where your business is against the issues you’re currently trying to manage, do you find any of the issues raised above resonate? I have yet to find a business that doesn’t identify very closely!
The best bit about this is though that, with the identification of the issue, there are processes and approaches specifically designed that enable you and your team to address the issue for once and for all. It “cures” the problem and allows the operation to grow in a less chaotic and more planned and deliberate way.
The approach we use not only looks at the above (as part of the “27 Challenges”) but also addresses the style of the leader, the Non-Negotiable Rules for each stage the business passes through, the right balance of confidence and caution in the business (that bit gets REALLY interesting) and the mode of operation of the teams within the business. In short, it brings out the “elephants in the room” and cuts them to bits so that we remove the “hidden agents” that are holding the business back.
Business is complex – the more people you have on board, the more complex it gets. By undertaking the processes such as those outlined above, we can de-clutter the business and get it on the path you originally desired when you set it up or took it over.
It’s fun, challenging and enlightening. It’s also incredibly valuable.
Just did a session with one of our customers and all their staff about what they need to do in their business to position it for sustainable growth. It was terrific – they were all contributing and we generated some really valuable ideas that they can implement in their business.
At the end of the day, it was absolutely fantastic when one of the senior staff said of her feelings about the outcomes and process “I feel like a weight has been lifted off my shoulders.”
How good is that? This business is going to outperform and grow very solidly as they have their engagement and communication issues being addressed and have committed to a process to make some minor, but important, changes to their operating structure that will get them back in line with delivering on the vision of the owner.
It is a real privilege to work with people on stuff like this.
OK, we have a week to go until the end of this financial year. How has this one gone for you? Has it delivered what you envisaged or not? What have you done well and what have you stuffed up?
Have you been satisfied with your progress this year or have there been things crop up that derailed you/your business on the way through?
Each July, it is worthwhile going through a process of re-aligning you and your business to ensure that you start the new year in the best mindset possible. This can be a challenging exercise – especially if you’re brutally honest with yourself. It does present a great opportunity for you to invest some time and clear thinking in determining the direction and focus of your business.
Many businesses often fall into the “same same” trap – they keep doping what they’ve done in the hope that things get better. As I say to our guys in here and to our customers – Hope is not a strategy.
Taking the time and making the effort will pay-off. The plan to do this, make some decisions and get things going in the direction they need to go will help “de-shackle” the business and ensure that you are making the most of the opportunities that have presented themselves.
Given the fact that hardly any businesses have any sort of plan and, when they do, it’s stuffed in the bottom drawer until your bank wants to see it, undertaking a proper planning approach and then implementing it can give you a very powerful competitive advantage over your rivals.
We have found that our customers who develop and implement a proper plan for their business – one that reflects the vision and goals of the owners, create superb results. They are more profitable, more effective and create far better working environments than the businesses that don’t. The secret to this is getting your team involved in the process.
By getting your team on board in the planning and implementation, you enable them to develop a real context about the “why” of the business. They get to understand the dreams of the owners and, on all occasions where we have seen this, they own it for themselves. In many respects, they take on the business direction personally. This creates an incredibly powerful culture within the organisation.
So, please think very seriously about investing the time to develop a plan and then invest the time to implement it. Hint: make your KPI’s reflect the implementation. If you want more information about this, please let me know.
We use the Growth Curve approach (research based) with our customers. It’s proven, effective and exceedingly powerful. The changes it has made to the businesses who have gone through the process are profound.
Special offer – sign up for one prior to 30 June this year (to be rolled out through next financial year) and we will attend to the implementation for you at a reduced price. Contact us to discuss.
Planning is an essential element for any successful business. Implementation is the key component of any plan that sets the really great businesses from their competition.
Invest the time in your business this July – you will be glad you did!
The most difficult thing to achieve is change. This is due to many things and I had cause to experience the impacts of it over the past couple of months.
My gorgeous wife uses a website to enter information associated with her work and, over the Christmas break, they changed the format and structure of the site to “make it better”.
Unfortunately, the government department (now THERE’s a surprise!) had not let anyone know about the changes or what it would mean to them let alone how it would impact on their work. Must have seemed like a terribly good idea to someone at the time.
We’ve been dealing with change in our business too – new technology, systems and processes are being introduced (and will continue to be introduced) to enable us to be more effective in what and how we do what we do.
This change can be embraced or it can be pushed back against or, worse still, you get the “passive aggressive” response.
I love the line by Tancredi Falconeri from “The Leopard”:
If we want things to stay as they are, things will have to change.
To embrace change, we need to ensure that the processes and planning around the change is well communicated to all concerned. I can’t remember who stated the line, but I love it:
People don’t resent change – they resent being changed
For change to stick, we need to bring everyone who will be impacted on board early to enable them to contribute to the planning and rationale behind the changes being proposed. Yep, this is time consuming, but it will help maximise your chances of successful implementation.
Depending on the particular personality/approach of your people, they will eagerly embrace the change, put up with it or actively (or passively) rebel against it. This is where you need to understand their approaches and preferred styles when dealing with stuff.
It’s your responsibility as a leader to be effective in communicating the issues to your people and listening to them (not just hearing them!)
For change to stick, communicate, communicate, communicate.
Ahhhh, Real Estate Agents (aka realtors in the US) – you either love ’em, or hate ’em.
Over many years, the development of the industry has seen the big focus on the “sexy” part of the business – listing and selling wonderful homes and making the big bucks. Good pub talk and lots of profile.
When we look at the property management side of the industry though, it is seen (and yes, I know I will be howled down for this) as the poor cousin. It’s not as sexy, the revenues aren’t as good, the advertising collateral is pretty crap and all you do is deal with nit picking tenants and unreasonable landlords.
Why is it this way? Why does it have to be this way?
When we’ve looked at a real estate agency to buy or sell, the vast majority of the value in the business resides in the rent roll. When you look at a notionally well run real estate office, the rent roll income pays all the operating expenses for the business for the month so that sales commissions are “cream”.
Considering this, why doesn’t the property management department get more “love”? It would appear to be the place where people get inducted into the industry, or get “promoted sideways” until they leave. Sure, there are some exceptional property managers out there, but the general perception is that it’s a bit “dead end”.
Now, my question is, what would happen if property management “got its mojo back”? Imagine how a really good property management division would look – established and well communicated expectations for tenants and landlords, commitments to and actual delivery of service that was valued and appreciated by all the customers.
Think of the true value that the owners of the business would realise if their property management division was firing along? This, remember, is the core component of the value in any real estate office and is also a very liquid investment for the business that can quite easily be sold off. The cashflow it generates is (when run well) very healthy and it can provide an underpinning for the whole office.
So, if you own an real estate business, how “well” do you look after your property management arm? My bet is that you could probably do a lot better at it and, once you do this, your income and underlying wealth will improve substantially.
Taking this thinking a step further, we also see that many businesses do not direct attention at the “boring” aspects of their operations. Is it because they’re boring? Probably. Remember that (according to some) 140% of your profit comes from 20% of your business. My observation is that the less sexy bits of a business really underpin the whole business and yet they don’t get the “lurve” they deserve.
Have a think about your business – are you paying attention to the boring stuff that pays the way? Or are you missing an opportunity by not realising you’re sitting on a “field of diamonds”?
The Australian Institute of Management has recently released a report on the perception v reality for middle management.
It is not pretty reading – especially if you’re a middle manager!
Now, the survey was conducted by AIM and Monash University and surveyed 1,898 people across the business spectrum and, according to the Press Release from AIM:
The survey participants said middle managers in their organisations are significantly underperforming across the range of key indicators including people management, communication and leadership
As AIM states,
Middle managers are the communication ‘gatekeepers’ in an organisation responsible for transmitting messages up and down the workforce ‘ladder’. It is these managers who have a key role in shaping a company’s workplace culture and who help determine the success of productivity initiatives and major change programs. Pacesetter organisations are those in which middle managers are in sync with their organisation’s vision, goals and business strategies.
It all comes back to the leadership within an organsiation – how well the goals and mission and vision of the business are communicated not only from those at the top, but through those all the way “down” in an organisation. From my experience, there are not very many businesses that devote any time or effort to really get this information effectively all the way through their business. Those that do are exceptionally successful, those that don’t wither and underperform.
Whilst the report encourages middle managers to take more responsibility to refine their own skill sets in the areas of leadership, communication and staff management, the reverse is actually true – the owners/senior management within organisations need to provide their own leadership and support in this area. “A fish rots from the head” is an apt analogy here. Those “at the top” are obliged to provide what is needed for those reporting to them to deliver what is required.
With an effective strategy to engage and develop middle managers, organisations can truly excel. We have seen loads of examples over the years where businesses have invested in processes and strategies that specifically address the need to communicate vision and mission and goals through and organisation (the Stages of Growth process is ideal for this and, being research based, is incredibly effective) and also to enable people within an organisation to understand and then play to their strengths (the Trimetrix Assessment is perfect for this). The end result of undertaking these processes is that the organisation is healthier, more focussed and far more effective in what and how it does what it does.
One of the more telling components of the report states:
Our survey results confirm that now is the time to be more strategic when evaluating the contribution and capabilities of middle managers. Certainly, if organisations are to maximise their performance in a marketplace that is becoming more global and more competitive by the day they need to ensure that middle mamagers are a positive asset, not a hindrance.
Where an organisation understands that middle management is there to provide the support, guidance and direction to the operations level of the business and then ensures that middle management has the right information, communication skills and leadership abilities, they will do exceptionally well. Unfortunately, we often find that most organisations adopt one (or more of the following excuses – and this is not an exhaustive list):
- we’re too busy
- we don’t have the budget
- our people aren’t up to this
- we don’t have the time
- it’s not onoe of our priorities at the moment.
Thinking such as this on the part of senior management will ensure that they won’t allow their organisation to thrive. There will always be an excuse and there will always be the opportunity to work on the business to make it better. By putting it off and/or ignoring the potential that exists within an organisation, the argument is that the owners/senior managers are being negligent.
So, if you want to invest and get a very solid return on the improvement that is waiting to happen within your organisation, why not get in touch? The survey results show that most businesses are pretty crap at management of middle management. By improving their performance in this area, they will significantly outperform their competitors and find life is a lot less stressful.
Nothing to lose, everything to gain. It would seem stupid if you didn’t pursue the opportunity for your business.
By way of example, we did a Stages of Growth Xray with one of our customers the other month. As a direct consequence, their gross margin increased from 34% to 51%. Would you like to do that?
To read the report, please follow this link.