Is your company in trouble?
Join the crowd. The economic recession has put many well run and successful companies on the verge of closing their doors. Layoffs are the norm. Summer jobs for young people are almost non existent. Slashing payrolls have left many homeowners trying to figure out how to keep their homes. Consumer confidence continues to slide and the cycle continues to worsen.
There is hope! There are proven principles to follow in order to stop the slide and in fact be an early turn around success.
I have been involved in several successful turnarounds and will begin a series about these principles and share specific things you can do to survive through hard times.
The first principle is “Cash In“.
Cash In means that every person in the organization must focus on bringing cash into the company. SHOW ME THE MONEY! This must become a primary focus. It starts at the top and must permeate through to the lowest levels of the company. I can not repeat this mantra enough!!!! CASH IN- SHOW ME THE MONEY.
Everything the company does must be rebuilt to make this CASH IN a key metric for survival and turnaround success.
Here are some specific steps and tactics:
1. Build a business model that shows the cash generated or used each month. A business model is NOT a business plan and it is NOT a budget and it is NOT a simple spreadsheet of income and expenses. Without a true business model, you will likely fail!
So what do I mean by a business model? I mean a model you build that recognizes the key Metrics (success factors) of your business and their interrelatedness. If you sell more of X what else changes? When does the cash come in and when does it go out? Are you selling more and enjoying it less because your accounts receivables are growing? The business model should have a page of assumptions that are all in one place so it is easy to do “What If Analysis”. If you change any assumption how does my cash change? The model needs to be built at the detail level so that it provides each month a projected amount for each item on your general ledger. The model needs to be built at a foundational level that shows your UNIT ECONOMICS. Businesses are built on units. A unit may be a location for a franchise; or a publication for a publisher; or a crew for a remodeler; or a product for a manufacturer. Determine how to make each unit function better, faster, cheaper and then replicate the units. But you can not use up cash on a unit and make it up on the volume!
You will want to compare your actual results with the model each month and take the time for a continuous improvement process on the model. How did the model compare to actual results and how does it need to change to do a better job of projecting results? This is a never ending process.
But it yields some amazing results- You sleep better at night; you will understand your business better every month; you will find yourself creating new strategies that improve your Cash In; your outside parties of interest (BOD, investors, banks) will have more confidence in the business; you will deserve the confidence.
What are the benefits of a true business model? A business model lets you brainstorm creative strategies to improve your business. The end point of the new strategy run through the business model is simply, “did I get more Cash IN”? The model lets you target a unit and figure how to make the unit run more efficiently, and bring more CASH IN; then you can develop strategies to expand into more units.
Unless you are running a very simple one product, one person home business, no one can keep all the interrelationships in mind without a business model. I have seen many times where a trusted professional advisor gives reasonable advice, except it is WRONG!
Rather than go into more steps and tactic to bring more Cash In, let me share to an important Turnaround Secret:
You can not survive by cutting costs alone! Cost cutting always lags the economic realities your company faces. The slide and slope is always faster than you can react to… and if you try to react too fast without a business model, you will makes killer mistakes. Negativity is like a shot in the head to a company.
The ultimate Cash IN machine is knowing your business model and interactions between key metrics; understanding your unit economics and fine tuning them; and then…
Developing creative strategies to do more business. The survival and success answer is always about how to do more business that brings Cash IN.
Don’t get me wrong, cutting fat and renegotiating lower costs is very important. I look at every line item and religiously hack away at the cost of our business- but not at the expense of the business model and our unit economics. We have renegotiated and bid out every cost from our phone and internet and other connectivity costs all the way down to the cost of our landscape service. You can get some great deals by companies hungry to generate Cash IN. But cutting 10 or 20 or even 30 or more percent of these costs can not make up for a significant slide in sales.
But here is the good news. All this work to reduce the monthly overhead and improve the unit economics and gain better control and understanding of the business creates a CASH IN MACHINEthat will become very profitable when the consumer confidence does come back!!! Your business can be one of the remaining survivors that will increase market share and prosper in the days ahead.
Check back for more principles and specific strategies and ideas that are proven winners in the CASH IN sweepstakes…..