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4 Ways To Prevent Hidden Cashflow Crisis





Interesting chat with Ian Baker this week about why cashflow is currently the biggest problem for business failure, especially for SMEs. We were interested exploring the hidden contributing factors beyond the obvious sales decrease vs. running costs. Ian’s perspective was around the dynamic influence of Accountability and Innovation; whereas I found compelling evidence to focus on Leadership and Training to elevate productivity.


We thought we’d share outcome of our discussion: four ways to prevent hidden cashflow pitfalls from causing business failure.


1. Redefining Leadership


The pandemic has resulted in the de-centralisation of workplaces as remote working becomes the new norm. This in turn has created a dispersal of power as the previously tried and trusted organisational structures have been replaced by a new kind of leadership. In our new Covid-world, those who are fastest to adapt to the new ways of working are rising to become key players in delivering business goals. In short – anyone and everyone can now be a leader – you don’t need the job title.


Presenteeism is estimated to cost the UK economy upwards of £15.1billion every year, making it nearly double the cost of absenteeism. As we can now hide behind the ‘camera-off’ mode, effective leadership is critical to productivity levels. Research has also shown that actively engaged workforces deliver 2.6 times the earnings-per-share growth of their unengaged counterparts. This means it is business-critical to create robust new communication and workflow systems to maintain momentum toward achieving business goals both in and beyond of lockdown. Agility, integrity and inclusivity are far more important than the job title when it comes to building business resilience.


Leadership now has a much more transparent impact on the bottom line, both in terms of realised and lost output. Every £ spent has the same value as every £ brought in, and in an ever-changing marketplace, recognising true leadership is essential to protect the organisation against ineffective expenditure as well as driving effective revenue streams.


2. Upskilling and Training


On 16 March 2020 a vast range of basic skill-sets were thrown into disarray as the UK’s first lockdown commenced. There was a sudden and urgent need to upskill, ranging from the reality of setting up a viable home office and becoming an overnight Zoom or Teams aficionado, to showing personal resilience, being an expert at communicating via video call and managing projects without ever being in the same room as the team.


Just because someone was a star performer in the pre-pandemic world does not mean they automatically have the right skill set to ride high now. Training has also had to evolve fast with results varying from money wasting online-tick-box-training and death-by-PowerPoint, to innovative new interactive bespoke solutions.


It is obvious that ‘soft-skills’ have now become recognised as ‘power-skills’, but is it is also crucial to ensure that investment in training delivers true ROI through behavioural change, which may require a more evolved programme of learning. For example, the old 3 day Leadership course in a hotel meeting room is now more likely to be a 12 week blend of micro-eLearning, social learning and practise through projects, a radical change with the potential to deliver greater results and cost efficiencies.


Investing in training when cashflow is under scrutiny can seem counter-intuitive, but research has shown that comprehensive training programmes lead to a 218% higher revenue per employee.


A new approach to training can also strengthen the ties with company values and increase team-citizenship. For example, Sustainability is now a central part of many company cultures, so it is interesting to see figures from an Open University study suggesting that eLearning cuts energy consumption by 90% and slashes CO2 by more than 85%. Much like leadership, the key here is ROI rather than expenditure when evaluating cashflow models for business success.


3. Accountability


What is accountability, how can it be defined in the modern business age? The word is often associated with a negative connotation, pointing to a responsible person or team for a particular action. However, as we move quickly through a new century the previous culture of blame has diminished, and ensuring that the employees and the directors remain accountable is vitally important.


Accountability can be broken down into two areas - transparency and ownership. As business owners, we understand that every penny made in a sale and every penny spent in the search for that sale affects profit and ultimately cashflow. During periods of both success and stress, remaining clear and transparent with your communication on the key performance measures with your teams and leaders helps you when times are hard. Reporting to your teams that “we need to cut costs” without context creates a culture of mistrust, however, if those engaged within the business can see for themselves what areas are struggling and how that has impacted the numbers, you actually grow trust.


If we then take the time to explain how each team member and leader and their actions can affect the profitability you can foster a culture of ownership, which is the second key factor.

Without ownership of a problem, the knowledge can be pointless . So we must as leaders communicate the key measures with the upmost of transparency and not only demonstrate our ownership of the problems but still encourage the teams to take ownership as well.

If we deliver both transparency and ownership, the entire company begins to develop a joint accountability for the performance (both good and bad).


4. Innovation


We typically think of innovation as being a new product or service we have developed for our business. When thinking in the context of cashflow and profits, business owners must continue to invest in innovation in the following areas:

a. Top line sales

b. Process/ Product costs

c. Spend/ Overheads


These three areas all have an impact on the profit and cashflow. If we take a simple example for Company X. They have recently invested £1,000 in a new customer relationship management system (CRM), and they have sales of £100,000 per annum, so a 1% investment of sales. They find that this has allowed them to sell more to their existing clients, increasing sales by 5% - so a net gain of 4% or £4,000.


In addition, in the process of using the CRM, they have become better at forecasting sales and have just re-negotiated with their supplier a 5% reduction in their supply costs (which was £50,000 per annum), so a saving of £2,500. With just a small innovative step in adding CRM to their business, which feels like spend, they have added £6,500 to their bottom line.


David Brailsford, GB Team Manager for Track Cycling, helped the team improve and win medals by innovating in just a small way every part that impacts the total performance. In the same way, as business owners and leaders, we must appreciate the full complexities of cashflow and act decisively to drive overall business performance. It is evident that through progressive leadership, targetted training and bestowing accountability small improvements and innovation, there can be a significant positive impact on the cashflow of a business to ensure it is part of the successful 10% that thrive not the 90% that fail.

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