Part 2 Cash Flow – The Oxygen and Blood of a Company

Business Basic – Profit and Cash Flow – Two Business Priorities

Part 2 Cash Flow – The Oxygen and Blood of a Company

Drain all the blood from your body and see how long you can survive without a quick and significant infusion. Cut off all oxygen to your body and you will expire in a finite matter of time. A company that runs out of cash will cease to exist without a significant infusion of cash.

Cash flow is so important that you should view it as oxygen and blood. There are times in a business life cycle that protecting cash is more important than protecting profit.

Cash gives you the ability to expand your business; Cash gives you the ability to seize opportunities;  Cash flow gives you the ability to borrow; Cash gives you the ability to “live to fight another day”.

We are making a major assumption that the business itself is viable and run on sound business practices. Meaning the business returns value to investors and makes a profit. If the business is not viable or properly managed then it will ultimately fail, which sometimes is the best business decision.

Monitoring and building cash is not flashy, exciting or “cool”. It takes discipline and effort to stay focused on sound business practices. Solid business practice of cash flow and profit management can be the anchor in times of crisis.

Several case examples:

1.)   Ford is losing billions of dollars a quarter. They are surviving because they are viable, have been profitable and built cash reserves.  Cash on hand that buys them time to make decisions to turn the operations back to profitability.  They cannot survive forever with losses but if management makes prudent, tough decisions and market conditions improve, they can again be profitable.

2.)    A small business that operated 46 installation trucks was severely affected by the gas spikes. The company was hit with both rising costs and reduced revenues because their customers were hit with the same impacts. The company could not sustain the cash losses so they traded a number of older trucks for new trucks on a 2 trucks for 1 basis. There was a paper loss associated with this approach but afforded significant advantages to the company. The company saved cash by eliminating 23 vehicle payments, insurance and employees. The vehicles and employees on the road now are all producing at maximum capacity. The company is producing less revenue but it is both profitable and running positive cash flow.

3.)    A manufacturing operation that continually monitored cash flow and profit, built a cash reserve over a number of years. A larger competitor built impressive sales and distribution by focused and quality marketing. The management of the larger company focused on sales numbers in lieu of profit and cash flow.  When the economy changed and the larger company faltered, the well run smaller company was in the position to buy the competitor at a bargain price. Applying their sound business practices allowed the combined company to dominate their market while making solid profits and positive cash flow.

Cash flow and profit must fundamentally be a component of best business practice.

 We want to hear what you think about this topic and questions you need answered for your business.

Rick Williams is an award winning businessman and the managing partner of the business consulting firm ProMMC & ProMMC China.  You can contact Rick Williams at rickwilliams@prommc.comwww.prommc.com

 Dedicated to the success of its clients

Business Basic – Profit and Cash Flow – Two Business Priorities

Part 1 Profit

Profit should be one of two priority guides in every part of your business planning, even if your business is a non-profit. As a priority guide it must be reviewed daily, weekly, monthly, quarterly and yearly.

A business stays in operation by receiving more value back than the cost to produce what it sells.

The amount of the profit is not relevant; the fact that you must make an accounting profit is. Market conditions, product offering, overhead costs, production costs, quality of management, marketing savvy, lucky breaks and other factors will determine the amount of profit.

We are not talking about profit simply for the sake of making profit. Planning for profit is a commitment and pledge that your business will succeed into future years.

There are always times that business take economic hits. Today’s global environment of volatile energy and raw materials create significant pressure on controlling costs. The habit of planning for profit guide and support the tough choices business must make to survive and thrive.

Every business has core values and focus it strives to accomplish.  Over the course of a business life it will need to; borrow money, require additional investment capital, assure customers of its perpetual existence or any number of other worth based evaluators. Profit is one of key evaluation components.

Customers, who want the best deal possible, still know that if you are not making money, you will not be around to meet their needs. There are customers that have no regard for the value of your business. In assuring the growth and value of your company’s profit, planning can allow you to give up customers that provide no value to your business to focus on those opportunities that do.

Planning for profit is the starting point of business basic. As the business evolves, profit is a key measure of investment worth that validates all the hard work, vision and time invested.

 We want to hear what you think about this topic and questions you need answered for your business.

Rick Williams is an award winning businessman and the managing partner of the business consulting firm ProMMC & ProMMC China.  You can contact Rick Williams at rickwilliams@prommc.com

 Dedicated to the success of its clients

Follow the Roadmap of Past Success

This past weekend I went to a family reunion. Three generations of family from the big city piled into a motor home for the two hour trek to the family farm in the country. The farm has been in our family for well over a hundred years. It is a great opportunity to connect family, experiences and generations.

For the first time in a number of years my children, brothers, nieces, nephews and parents were all there at the same time.  A very special generational connecting event happened this year; the city kids experienced “the walk to the water fall”.

Through our property runs a creek, the creek is very much the same as it was when the Miami Indians roamed that area for hundreds of years, wild and untamed. Pipe Creek has a hard rock bottom where fish and crawdads dart all around you. The rock sides and deep tree lines make it feel as if you are an explorer in a world no one has ever seen.

What is special about this walk are the connections and generational ties that bind it together. As my brother set out on the several hour walk from the family reunion site down to the falls, he left with kids in tow. The city kids experiencing and exploring a simpler and more basic time in life. Seared in my memory from thirty years ago was the same walk with my brothers and cousins. My Dad recalled vivid memory of his creek walk to the falls as a city boy spending the summer at the farm sixty years ago.   

Walking down the creek they had experiences that only they could have. There were obstacles, when my son grabbed a small snake as it slivered across the water. He grabbed it, it bit him. The snake was not venomous and makes for a great story but could have derailed the trip. 

When they reached the water fall the older boys slid down the ten foot drop into unknown depths. Fear and risk diminished by the exhilaration, adrenaline and embolden of youth. Their goal accomplished at journeys end while just starting the story that they will pass to their children.

Following a path that has been laid before you guides your way with a goal to reach. Businesses have operated for many years and there are some fundamental principal paths that all companies follow. No matter how creative, innovative or unique the companies story it must operate in a way to assure its success. The way to success has been laid before you to follow with time tested road maps.

Two fundamental principal concepts are shared in successful companies.  First, they sell their product or service at a profit; some do it out of shear luck, but most understand their costs and have a solid accounting principal to allow a profit through guidance and planning. Second, they sell enough product or service. This requires enough transactions of value that sustain the cash flow to allow for the plan to be realized.

These principals seem obvious, but it is surprising how many businesses are started and run without a map or path to achieve their goals. It is much more interesting to talk about your business in terms of all the abstract potential and aspirations. Risk, cash flow, expenses and a business plan are diminished by the sales projections and the unique way you do business. In consulting with many companies, I have been amazed at how many companies forgot the basics only to become “snake-bit” by the practices that everyone in business “should know”.

The reality is that when a business follows the tried and true fundamental principal plans there is a significantly higher rate of success.  When my kids started down the creek, they had a goal and a plan to reach the water falls. Their experiences along the way were unique and their own, but accomplished by following a path that others had already traveled.  

There are those that succeed in unusual, innovative and creative ways, but few if any do it outside the scope of proper business fundamentals. No matter how innovative, creative and unique the company its chance of success is tied to following basic business fundamental paths laid by generations before us.

Over the next several blogs we will discuss these fundamentals and how to apply them to your business and goals for success. Well established companies going back to evaluate the basics can have profound effects on profitability and for young companies it is essential for long term success.

We want to hear what you think about this topic and questions you need answered for the success of your business.

Rick Williams is an award winning businessman and the managing partner of the business consulting firm ProMMC & ProMMC China.  You can contact Rick Williams at rickwilliams@prommc.com or at www.prommc.com

Success

Why are you in business? Have you looked in the mirror lately and asked yourself that most basic question? The universal answer is to earn a living that pays for the necessities of life. Past the most basic answer what is your business purpose and how does that fit your life goals? There is no right or wrong answer, but is the application of that answer how you conduct your business and personal life?

One answer might be “I want to build a better life for my family”,  great so how does your business make that life for your family better;  quality of life, more time with children,  travel, fame,  education, legacy, respect, more money or other values you hold dear. How do your actions reflect your commitment to the answer?   It is important to schedule time with yourself each month, even just fifteen minutes, to make sure the most important values in your life remain the focus of your life.

Many of us love our business but the most happy and self-actualized are those that keep balance in all areas of their life. Your business is an important part of your life however it is only a component of who you are. Success in business is admirable; success in life is truly fulfilling.  

Our mission is to share years of business experience to advance others both professionally and personally with relevant and informative information.

We want to hear what you think about this topic and questions you need answered for your business.

Rick Williams is an award winning businessman and the managing partner of the business consulting firm ProMMC & ProMMC China.  You can contact Rick Williams at rickwilliams@prommc.com