Revenue is vanity, profit is sanity, but cash….

“Did you hit your numbers?”   
“Are we on budget?” 
“What’s the Q2 target?”   

 Familiar questions I’m sure. Everybody loves revenue. It all starts with revenue, but as the title of this article states, “revenue is vanity, profit is sanity, and cash is king”.   

Cash is the fuel your growing business needs to scale up and thrive and to take it a step further, the real number to pay attention to is CASH in the BANK

Cash is a key value driver in your business.  The more your business is able to self-generate cash through operations vs requiring inputs of cash from other sources (line of credit, debt, etc…), the higher your multiple will be in the valuation formula.  Plus a business with cash is a lot more fun and easier to operate.   

What we often find is that the business is like a leaky bucket when it comes to cash.  With a little sharper focus and good old discipline, cash can be found “laying around” throughout the organization.  

First, let’s bust a myth about cash, shall we? 

Cash flow is not an accounting problem, it is a business problem, and everyone has a role in cash coming in faster.  Accounting’s role is getting invoices out timely, following up with customers, and ensuring deposits are made same day. However accounting doesn’t own all the roles related to cash – the whole company does! 

Here are three areas where businesses can often find cash by plugging these holes in the business’ cash flow bucket. 

  1. Eliminate errors.  Errors cost money.  Money is cash.  The more errors, the less cash.  Find errors throughout your organization that are causing rework, scrap, etc, get to root cause your team and solve the issues.   
  1. Improve cycle times.  The cash conversion cycle starts with prospecting a customer and ends with the final check being deposited.  Throughout this cycle, look for ways to speed up.  For example, focus on core customers.  You know how to sell to them, they’re prepared to buy and your offering is typically streamlined.  (Side note… If it isn’t, figure out how to do this, so you’re not figuring it out every time.) All three of these factors around focus on your core customer increases the speed of winning the order, producing the order, and delivering the order. This is a reduction in cycle time, and in this case the order is obtained quicker, produced quicker, AND… cash is received quicker.   
  1. Improve your business model.  Don’t get stuck in “that’s the way we’ve always done it” or “that’s the way the industry is”.  Get creative, disruptive and be bold.  If you don’t ask, if you don’t try, you won’t get new results. Look to increase your deposits, phased payments, ACH direct deposit from customers, inventory reduction, membership fees and recurring revenue to name a few.   

So start looking around your business for cash and plug the leaky bucket.  This is the fuel you need to scale up, increase the value of your business and be positioned well for the future.