4 KPIs to Managing Your Company's Cash--Driver 6

In our continued series of posts on the Seven Business Drivers, we’re going to tackle driver number six: cash. Having cash as the sixth out of seventh driver may be a controversial position to have in business. Many systems view cash as a primary driver for the business. After all, cash is the life blood of a company. If you don’t have cash or at least cash flow, it’s really tough to have a business.

Cash, however, is a result of having the previous business drivers in place. If your company is working smoothly and in alignment, you’ll have customers and customers create cash.

That said, the creation of cash is almost easier than managing it once you have it. Cash management requires detailed attention to some very specific KPIs (key performance indicators). Among the KPIs necessary to efficient cash management are:

1.       The time it takes to collect the money you’re owed. Obviously, it is best to shorten this time as much as possible. This is why recurring revenue models that customers pay via a credit or debit card receive such high valuations. The cash comes in consistently every month—at the control of the company providing the service or subscription product.

2.       Profit margin on your product or services. This may seem like a no-brainer, but I’ve seen several situations where sales teams discounted away margins. In services companies, I’ve seen cost overruns make the service more expensive to deliver than the provider initially charged. Often, these latter two scenarios tend to start as “one-off” anecdotes that, over time, become routine occurrences that erode cash slowly.

3.       Days to pay your accounts payable: If you’re paying people you owe money to (employees the exception) faster than you’re receiving the cash, problems will occur. Keep your AR/AP timetables in sync with each other as much as possible.

4.       Have access to a line of credit: You never want to run out of cash, even temporarily. Par of efficient cash management is to always have immediate access to a line of credit—especially to make payroll consistently. Pay the line off as soon as the cash comes in, but make sure you keep the company running.

There are many other tips to effective cash management available on the web. How are you managing your cash? Make sure you get reports every 30 days on the four KPIs above. Watch them closely and make adjustments quickly. If you’re not getting these reports from you’re team, then you are driving your company without a fuel gauge, making it more likely you’ll have a cash crisis than not.

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Interested in business coaching? Have us put the 7 Drivers to work in your company. Write today: peter@livefused.com.