Happy New Year! That’s enough celebration. Now get to work and get your cash flow under control. The last two years have played havoc with our cash flow. Free money from the government. Shutdowns in some sectors. Raging bulls in other sectors. The reader can be forgiven for asking WTF? It’s like we’re operating different economies for each sector. One for hospitality, retail and restaurants, one for construction and the building supply chain, one for finance and lending and one for the industrials.
And I love you guys, but I think you all are a little at risk for not being strategic about what to do with the business and its cash. In general, I would say that American business Leaders as a group right now are not as balance sheet focused as they should be. There is sort of a progression here, leaders go from revenue focused, sales are up life is good, to P&L focused, sales are off, but earnings are up so life is good, to balance sheet focused, the value of the business (or my net worth) is up so life is good. Unfortunately, people can retire without getting to the third stage. Which is really sad, because that may mean their retirement will be more spartan. Possibly with Walmart greeter getting on the resume before the end.
So what does blocking and tackling have to do with balance sheets, especially if balance sheets are the expert mode topic? Balance sheets ARE blocking and tackling. It’s just that business life in America is so easy that we often can make a living without learning about balance sheet hygiene.
I’m not going to make you a CFO or Treasurer in this discussion. But I am going to tell you that if you are not producing a monthly cashflow projection, you’re doing it wrong. (You do this at home anyway don’t you? …don’t you?!?) The timeframe for the project varies by industry, and to some extent by the current situation. And in 2022, the current situation calls for projecting the year for many industry sectors.
We don’t predict the future. But the guys that do are suggesting that Q1 will (continue to) be pretty good. Then things will get a little quiet and in late Q3 or 4, things will likely take off again. So project your cash receipts and your cash needs for 2022 now to see what lies ahead. Maybe in your sector it’s a non-event and you just keep stroking. But if you are in certain sectors, you will want to take some precautions. Don’t act precipitously but know the triggers that would cause you to want to take action. That way, if your cash flow drops unexpectedly in April, you can take action to reduce your expense load in May and you’re almost no worse for the wear. But put instruments (a scorecard) in place so that you can see the warning signs before they occur.
AND if things work out well and you are ahead of plan, then you can put the cash surplus to work in the business or draw it off and put it into other investments. But don’t leave the cash unproductive because the interest you’ll get is negligible.
Call To Action
Develop your 2022 cash management strategy now:
1. Create a cash flow projection for 2022.
2. Develop a monthly (or more frequent if your primary business is cash) scorecard.
3. Develop contingency plans for a 20% reduction in cashflow and a 5% reduction. Load up on as much non-talent cost cutting that you can identify. Cutting talent should always be a last resort as it costs you all the investment you have made in your human capital.
4. In this environment; identify the talent you want to retain across such an event and plan your retention strategy in advance. You don’t want these people panicking and leaving. Especially now, as difficult as it is to find good people.
5. Brief a (very) small set of your leadership team, maybe just yourself, but possibly more, about the plan so that when the time comes, it can be executed quickly with minimal collateral damage.
I hope you found something to apply to your business in this MBR. Let me know either way.
See us here on LinkedIn.