In many industries obtaining adequate financing and balancing debt to equity can be a challenge to maintain. Sufficient working capital is required to insulate an organization, run day-to-day operations, keep up with competitors, fund growth opportunities, and adapt to change. Businesses change, markets shift, and customer preferences evolve. But one thing always remains the same, cash is still king.
All businesses, no matter the individual company mission and unique selling proposition, live on profits and operate on numbers. Accessing cash requires organization-wide financial discipline and a working capital optimization strategy throughout. Most companies already know this but implementing strategies for improving cash flow does not often leave the C-suite or finance department. Creating a cash culture can help embed your working capital management projects into all functions of your organization’s procedures and goals and enable a company buy-in on your profit-driven focus.
A Cash Culture
The culture of a company is curated from shared values and a mission that ties everyone in the organization together and promotes engagement. Yet, company culture is a conceptual hot topic in the world of business. We know it is a mark of a healthy work environment and attracts talent and increases retention, but does it drive financial success? If more businesses take the concept of a company culture and blend it with the other mission: to make money, then cash-preservation and working capital accountability will precede over the organization.
Introducing a cash culture will further align the overall purpose and business mission of an organization with its financial goals driving further success and profitable growth. The three key elements that help initiate a cash culture are systematic thinking, financially informed staff, and working capital optimization procedures.
1. Systematic Thinking
A company’s culture begins with the leading entrepreneur, founder, or CEO and unfolds from the operational procedures in which the company is organized. To achieve financial success through company-wide strategies and decision-making, the CEO must think systematically.
Managing a company with systematic thinking will enable the highest level of efficiency in its business operating system functions without relying on built processes to read and understand performance. CEOs that can connect the dots between each function must know the business inside and out including the people, their tasks, and their skills. Those who possess a wide skillset and systems thinking will be in the position to fully understand performance drivers and indicators and explain the value the business creates and where it can be improved.
The systematic goals and operations of a company may best imitate that of the finance sector if you want to drive financial success. The finance department of a company has a unique view of where the money goes or does not go. They gather insight on where the business can be improved by collecting the right data and focusing on the financial accounts and reports. Finance runs on systematic thinking, numeral data, and mathematics. Replicating these methodologies throughout all operations can direct each function to operate under financial targets. Setting appropriate benchmarks, monitoring the right data, targeting the right KPI’s, and communicating those goals with the right people will produce hyper-focused results. Blending skills, strategies, and KPI’s from the finance sector with the company’s broader ambitions can found an organization to achieve a cash culture and financial success.
2. Financially Informed Staff
The next step to creating a cash culture is increasing financial intelligence throughout all business functions. Working capital management should not solely be the responsibility of the CEO and CFO of the finance department. While they monitor and report on capital levels and strategically optimize liquidity, other business functions drive those cash levers and generate the rate at which cash is consumed. Working capital management can often feel like an abstract concept to those not directly involved with finance operations. But various roles across a company driving new business development, maintaining customer satisfaction, or obtaining the supply of services, products, inventory dictate short-term cash activities, expenditures, and decision-making. If financial health relies part on these operations, holding each department accountable for their impact on the balance sheet starts with increasing financial awareness in all business functions.
To create a corporate culture that enables engagement and support of working capital management, you should be willing to share financial information with staff members that directly impact cash performance. Start by providing educational resources and in-house training to increase financial intelligence. A cash culture cannot be implemented without involving operations managers or employees in the financial statements. At your discretion, chose the appropriate and relevant reports to share such as daily working capital, budgets, sales reports, balance sheets, inventory audits, and other department specific reports. Hosting monthly meetings concentrated on financial reports will set internal revenue growth and cash flow management as a top priority and further implement profit-focused productivity.
Furthermore, sharing cash control, setting defined working capital optimization tactics with target KPIs, and incentivizing might highly engage department managers as cross-functional stakeholders. Some financially successful companies achieve highly efficient cash flow in their operations by offering incentives or compensation for management creating a buy-in on the firm’s financial success. Embracing financial awareness, discipline, and control will embed strategic cash preservation and optimization decision-making throughout the organization saving costs and reducing risks associated with liquidity.
3. Optimized Working Capital Procedures
Once your corporate culture has embraced financial education and responsibility within staff members that impact it, it is time to fully implement working capital optimization procedures. Maximizing cash flow should not be a project that ends with implementation, but an ongoing process. Companies that prioritize working capital and implement liquidity optimization in their systematic operation processes will see a cash culture transformation generating more internal capital, lower costs, and boost performance and competitive edge.
Begin with defining which working capital levers drive cash flow and can be optimized starting with the main components of working capital management: accounts receivable, accounts payable, inventory, and capital expenditures. Strategically define tactics for freeing up cash trapped on their balance sheets and create a process with roles, requirements, and triggers that can be scaled, replicated, and optimized. Outside functions should transform their cash reporting into cash managing by taking processes from the accounting and financing department. Start by focusing on budgeting, forecasting, and financing and indicate how to handle cash activities such as collections, procurement, and payments. If your accounting system doesn’t have a cash forecasting function, or you would like to utilize multiple tools to analyze/map cash inflows and outflows, LQD Business Finance offers a free EZ Cash Flow Tool.
Financial discipline in working capital management should start with a holistic approach on all fronts followed by a prioritization of cash strengthening initiatives. Organizations need to quantify the cost of cash with appropriate metrics to their operations and assess the critical level of cash required to make decisions. A systematic procedure containing defined variables, financial inclusivity, and assigned leadership responsibility for each capital improvement activity will help create that management buy-in and a cultural shift.
Implementing a cash culture will help instill the financial goals of your business as well as the product and mission you serve. As a work culture is based on sharing values, goals, and missions, sharing your financial objectives with all functions of the organization that impacts those successes will better align operations, keep your business finances on track, and achieve its goals and financial health. Systematic thinking, financially informed staff, and working capital optimization as a cross-functional process will establish a cash culture throughout the organization and drive future financial success.
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