Eventually there’s a laundry list.
The first conversation or two are often focused around a particular top of mind issue. Maybe it’s customer acquisition or rising CAC’s or cash or worries about hitting plan. But as my dialog with the CEO deepens, the issues spring up. ‘We have to work on that too!’ or ‘I have been beating the drum on that for months!’
And eventually my notes have a laundry list of concerns. I can feel the CEO’s urgency and the sense of being overwhelmed. I focus on reminding them that not everything is equally important. So the engagement has to begin with the understanding that we are going to tackle the most important things first and make rapid improvements. But the laundry list remains in the back of the CEO’s mind. It’s still the reality of their day to day.
Once the engagement kicks off, my first task is meeting and listening to the team leaders and finance team and getting familiar with all the models, reporting, analyses and processes that are driving the day to day.
It’s super helpful to hear multiple perspectives, to see the data and to get a feel for how this machine, that is new to me, actually works. And the laundry list expands. I get new detail on certain items and new items are added. I also get conflicting views on why an issue is an issue or whether it’s even an issue at all.
This process also begins to reveal the competing work streams and priorities that are bogging the company down and preventing the team from making improvements quickly.
Ruthless Prioritization of Cash
It begins and ends with cash. Profitable companies go bankrupt. It happens with depressing frequency. The only mortal sin is running out of cash.
Fixing cash goes a long way to fixing the laundry list. The first step is developing high confidence weekly cash flow forecasts. There are some handy tools to speed and automate some of this process, but cash management at this stage requires manual oversight and adjustments. And forecasting cash inflows from a scaling omni-channel brand with overstretched teams is challenging.
High confidence cash forecasting - a solid 13 week cash flow model - brings powerful benefits:
1/ Companies are often far closer to the edge than they realized. For example, revenue is not cash. The cash from sales to wholesalers doesn’t appear in the same period the revenue is booked. It can take months to arrive. If it even arrives at all. And it often is dramatically reduced from unexpected deductions taken by the retailer.
2/ This forecast also often reveals the true cost of debt the company is incurring. Seeing those interest payments kick in is painful. This is how we identify and stop the negative debt spirals.
Increase the Reps to Increase the Skill
There’s a reason teams practice. Reps matter. The more reps, the more skill that is developed. In my experience, the longer the time period of the goal, the harder it is to stay focused on it. Who can maniacally focus on an annual goal or a quarterly goal? A handful of weekends and who knows how many fires and the goals are back of mind. The laundry list begins again. The same is true of even monthly goals.
But weekly goals are hard to forget. Knowing that this Monday you are setting a number and the following Monday you will have to review how you did against that projection has a way of focusing the mind.
This process of weekly cash forecasts brings powerful benefits to the company:
1/ It helps bring home the importance of cash cycles and using our capital efficiently. Too often, capital efficiency is not factored into team’s decisions. The justification for an action is sales or maybe contribution profit. And the assumption is that cash will be there. This puts unwarranted stress on the CEO and finance. They don’t want to freak everyone out - ‘hey, cash is tight.’ So instead they seek more data as they look to gain confidence in the decisions. Teams get frustrated with the process; leaders get frustrated they have to ask for so much additional data and insight. Then once a PO decision is made, the CEO and finance scramble to cobble together capital through high cost lenders.
As everyone becomes more aware of how cash moves in and out of the business, it’s easier to instill discipline around getting cash returned quickly. ‘If we buy 1,000 units of this, it’s going to take us 270 days to get all our money back.’ But the faster we get our capital back, the faster we can re-invest it in our winners and growth.
2/ The focus on cash makes prioritization much easier. The laundry list gets whittled down and the competing interests begin to melt as everyone understands that nothing is more important than generating cash and using cash efficiently.
If this sounds familiar or is something you could use help with, let’s chat. I provide short term, high impact, high ROI financial consulting to scaling premium brands. Following an engagement, you will be on the path to being a cash machine with the right metrics, processes and people in place.
DM’s open and you can book time directly here: https://calendly.com/elephantherd/video-with-ben