Looking Under The Hood
The other day, I was thinking about the complexities of running a business and the many operational and financial components that must be in sync to truly optimize it success. As I thought about drawing a useful comparison, a gas powered car engine came to mind. Taken individually, each part of the engine contributes to its performance. However, if one or more of the parts does not operate properly, performance can be degraded, or worse yet, the engine can be seriously damaged. Critical to the operation of the engine of course is fuel. An unobstructed flow of fuel is the lifeblood of an engine. All components of the engine rely on the fuel to allow them to operate effectively and consistently. Conversely, any restriction of fuel will cause the engine to operate inefficiently, damaging parts and potentially causing the engine’s performance become erratic or to stop operating altogether. This comparison created many parallels as to the operation of a business and the critical role predictable cash flow plays in optimizing its performance.
While having predictable cash flow is seen as fundamental to the operation of a business, the ripple effects on all aspects of the business, not unlike the effects of fuel on the operation of the engine, bear further mention. The overall impact is that business decisions can be made, versus limitations and/or deferral due to undetermined receipt of payments by customers. These include:
- Timely payment of suppliers – ability to take on more/larger orders and potential to negotiate discounts
- Staying current with payables
- Equipment leasing/purchase
- Expanding facility or acquiring a new facility
- Retaining/adding employees
- Staying current on tax payments
- Expanding marketing efforts
- Engage needed advisors/consultants
While the above list is not all encompassing, it highlights the critical impact cash flow has on the business. An important by product is improved financial performance, ability to reduce debt and position the company to be a viable candidate for traditional financing or the ability to increase current financing availability. The result is a “high performance company hitting on all cylinders”.
If your clients and/or prospects are experiencing “engine knock” in the operation of their business due to poor cash flow, I’d be happy to discuss a tune up and maximizing their financial MPG.