5 Steps to Avoid a Cash Crunch

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As a turnaround professional, I help companies that have fallen behind in their financial obligations to creditors, employees, and other stakeholders. The cash problems a company experiences usually start small but can grow over time to become almost unmanageable. For instance, a company may show the first symptoms of financial distress by stretching payables with a handful of creditors. These problems may grow to affect a greater number of creditors and in larger dollar amounts, which put the company in a deeper hole. The problems can eventually become so great that they reduce the number of options available to a company and jeopardize its very survival.

Many of the problems these companies face can be avoided with more effective cash management discipline. Below are five steps business owners should use to survive a cash crunch. The earlier a company can adopt these, the better chance it has of successfully weathering the storm. In other words, these steps help ensure a cash crunch does not become a cash crisis.

1. Control and manage cash:

Managing cash can mean a lot of things, but the following three elements are key: First, ensure there is discipline around the number and types of ways cash can be spent by the business. Company leaders should limit the number of signatories on its accounts, reduce the number of employees with company credit cards, and be sure oversight exists for processing trade payables. In theory, they should channel all the company’s spending to a few trusted individuals. Nothing should go out the door that the CEO or CFO is not aware of.

Second, it’s essential a company forecast its cash position weekly, including cash receipts and disbursements. All too often, a prospective client in a cash crisis explains that the sudden crunch was unexpected. A cash crisis is always unexpected when the company does not forecast cash! If the company had forecasted cash, it would have had weeks to prepare and mitigate the crisis.

Last, find hidden sources of cash. These might be stale legal retainers that have never been refunded, dormant cash accounts, unclaimed property, collection of tax credits, and so forth. Every business has hidden cash in some form, and it’s usually large enough to fund an entire payroll or two.

2. Find expense savings:

Companies usually have no problem ramping up cost structures during good times, but it’s rarely as easy to squeeze costs out of the business during bad times. Most businesses in a state of decline assume a slump in sales is temporary and that it just needs to weather the storm. While this can be true in some cases, it’s important to recognize when cost cuts are necessary, and how to effectively make them. Business owners must be quick to respond when expense cuts are necessary. Any delay in making expense cuts will cause a cash crunch. When expense savings includes downsizing staff, it’s important the company seek qualified help to comply with local and federal employment laws.

3. Collect from customers:

Cash is king during a cash crisis. Business leaders should accelerate efforts to collect cash, invoice customers as quickly as possible, offer more generous discounts for more timely payments and shorten payment terms altogether, and aggressively collect from past due customers. Management should hire legal help to perfect security interests and/or file bond claims. For businesses where customer relationships are longstanding, owners or other leaders with strong relationships should get involved with collection activities.

4. Negotiate with trade creditors:

Keeping communication channels open with vendors is critical. Start early to let vendors know you will be paying them later than normal terms. It is critical to keep their trust to keep valuable products and services flowing. When things get really tight, it will be easier to negotiate with them if you have communicated along the way. Negotiating with creditors can be a delicate effort, and companies should retain qualified legal counsel to help. With the right help, companies can usually find significant short-term cash savings by restructuring trade payables, lengthening payment terms, receiving forgiveness of debt, and/or trading debt for equity.

5. Sell non-performing assets:

Just like households, companies accumulate a tremendous amount of stuff over their lifecycles. It’s important for company leaders to take action with slow-moving inventory, non-productive capital assets, and dormant real estate. Companies should also evaluate non-performing divisions, locations, and product lines. The sale of non-performing assets can be a significant source of capital.

Cash is the lifeblood of any business. The five steps above are proven tools used by successful companies to manage, preserve, and collect cash. It’s never too late to implement the steps, and the earlier a company can adopt these practices, the more likely it is to survive a cash crunch.


About the author:
Matt McKinlay is a partner at Advanced CFO, with 19 years of experience working with a wide array of companies in multiple industries as a senior leader. He has been CFO, CRO, or Receiver of numerous companies Matt is credentialed as a Certified Management Accountant (CMA) and a Certified Turnaround Professional (CTP).

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The Pursuit of Less

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As I exited a youthful mindset and began to mature in my thinking about life (read: life wasn’t always about me) I had a few key realizations.  These realizations have helped me remove the clutter of life & career, which have enabled me to focus.  The real power of focus is that our energy is funneled to a point and becomes singularly focused on the task at hand.  This is far more effective than being spread broadly.

BUSY-NESS

The first came when I began to realize the boasting of how busy I was didn’t really matter to anyone, but was in fact, a statement of my inability to focus on what really mattered in my life.  It came as such a shock as the realization came.  I wish I could say I was immediately healed of the malady, but it did come gradually as my mindset continued to mature.

DECLUTTERING

A second important milestone was when I realized the simple pleasure of decluttering.  The principle and freedom of ‘liberating’ a physical item from my possession each time I brought something new home was amazing.

It’s taken me many more years, and ongoing insights and reminders, to apply both of these principles to the less tangible pursuit of simplicity in my life and business.  However, applying it to the busy-ness of life and my business, are far more powerful and liberating.

THE DISCIPLINED PURSUIT OF LESS

Greg McKeown, the author of Essentialism: The Disciplined Pursuit of Less, is my favorite thinker on the subject.  His relentless proclamations of simplification are music to my ears.  The book itself has become one of my favorite business and life books and the principles he reminds me of have been remarkably liberating.  The piece he recently authored in HBR.org was yet another reminder, and a nice summary, of these important principles.

Perhaps paradoxically, if you’re looking for the ability to do more and to become more, there is no better starting point than simplification and focus.

 

I was reminded of the practical application of this when I read “How the Best CEOs get the Important Work Done”, another HBR article written by James Allen.  He fundamentally simplified the work of the CEO into 4 things:

“communication, communication, communication, and overseeing resource allocation to ensure that the priorities they’re communicating are actually the ones getting funded.”

Much of the rest of a CEOs workload can be delegated or eliminated.  Great CEOs do indeed stay focused on developing, communicating and ensuring the company strategy is executed.


David ChaseManaging Partner at Advanced CFO, has experience in small to medium private companies and large public companies as a senior operational and financial leader.  With nearly 20 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience.  Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $0.5 billion.

http://www.advancedcfo.com

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The Convergence of Finance and AI (Artificial Intelligence)

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I was recently asked ‘How can the office of finance better line up people, processes, and technology to score high-value data combinations?’

Despite the ever-present demand for financials and reports, the role of finance has always been to move beyond reporting.  Its fundamental role is to use the resulting data to find answers to questions of strategy and direction.  Even though many finance personnel feel driven to move past report generation and into value added insight, many aren’t sure exactly how to do so.  And paradoxically, the convergence of finance, data visualization and data science – the very movement that will provide the tools necessary to add value – leaves many in the field of finance feeling threatened.

Fundamentally, according to Hilary Mason in a recent HBR article (How AI Fits Into Your Data Science Team), data science is

“counting things cleverly, predicting things, and building models on data.”

We finance people embrace and embody that theory.  But when data science becomes machine learning and artificial intelligence, then we begin to quiver and worry about our jobs.  But machine learning is still only data science with the ability to “incorporate feedback loops” which still requires human programming and the machinations of the human mind.

Even cleverly assisted by machines, our organizations and CEOs still expect us to answer the question of ‘so what?’  And for the foreseeable future, the human mind is still required here as well.  The continuing role of finance will be to embrace software and technology, release the ownership of repeatable processes to machines, and leverage their capabilities to assist in answering the ‘so what’.

Artificial intelligence and technology, rather than undermining finance’s role in the C-suite, is enhancing its ability to shine.


David ChaseManaging Partner at Advanced CFO, has experience in small to medium private companies and large public companies as a senior operational and financial leader.  With nearly 20 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience.  Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $0.5 billion.

http://www.advancedcfo.com

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Be a Better Leader and Be Present

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Awakening

I’ve had a significant personal awakening in the past 18 months.  Whereas I once genuinely felt I was a good listener and empathizer before, I experienced a pretty stark realization mid-last year: I began learning from and observing a couple of individuals who helped me see that I wasn’t really connecting with others as well as opportunities allowed.  If I were to summarize briefly the interpersonal skill I was missing, it was true empathy.  I’ve recently been impressed by the CEO of Microsoft Satya Nadella’s musings on empathetic leadership.  In today’s world of increasing distraction supported by the always connectedness of our devices and the change that has brought to an ever-connected workplace, being there in the moment when you’re talking with people is becoming increasingly rare.  I don’t think many would dispute this.

 

Not-So-Present Leadership

Perhaps the greatest embodiment of being a distractible leader was found when I was a young CFO during my interactions with a consultant who was brought in during a difficult period.  This consultant was distracted by his devices more than anyone else I’ve worked with.  He almost never looked at you in meetings.  Rather, he was head down with his phone or computer.  It was so bad it was “almost” funny.  In our frustrations, many of us would just stop talking to see how long it would take before he even noticed.

The “funny” thing is, nearly all of us have the same problem to one degree or another.  However, we are either unaware of it or we think we’re sly enough to not get caught with our distractions of our devices or just internal chatter in our own mind.  Either of these behaviors takes us out of the moment and limits our ability to truly connect with another.

Leadership from Alongside

When I read Rasmus Hougaard and Jacqueline Carter’s HBR article on being present as a leader, I was further inspired and validated in my own awakening.  While our traditional understanding of leadership is one who is out front and literally leading or pulling along an organization, perhaps true leadership is done alongside the people.  It is being with them in the struggle, listening carefully, and seeking real understanding without being distracted.  And let’s be honest… it is so easy to be distracted today.

Being Present

Hougaard and Carter offer us four points to keep in mind as we seek to be powerful leaders who deeply understand the individual and the challenge at hand.  This level of understanding only comes by being present.  If you aspire to be a great leader, you must be present.  Here are some of their suggestions as found in their HBR article:

 

  • Be Here Now: Stay on task, listen carefully and put away distractions.
  • Plan for Presence: Plan moments into your day to connect with people in genuine, heartfelt ways.
  • Do Less, Be More: Said another way, listening is often the greater solution than making recommendations.  A comical but poignant example is the clip “It’s Not About the Nail.” Funny, sad and true at work just as much as it is at home.
  • Embodied Presence: Be self-aware.  Know when you have internal distractions, and then know how to solve them or place them aside momentarily so that you can be present with people around you.

As you are increasingly present with people, you’ll find that they’re more able to share with you.  Those opportunities are gifts to connect in deeper ways.  They are opportunities to validate their experience to let them know you understand.  That understanding is where the real opportunity to “lead” begins.


David ChaseManaging Partner at Advanced CFO, has experience in small to medium private companies and large public companies as a senior operational and financial leader.  With nearly 20 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience.  Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $0.5 billion.

http://www.advancedcfo.com

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Disagree & Commit

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When I made a move from the East Coast to the Intermountain West, I found myself in what some might call a radically different work environment. Some fans of a more direct approach might call it “honesty vs. dishonesty.”  The same principle but viewed from the more “compassionate” side might call it “heartlessness vs. empathy.” But inside of the change in styles, I was witnessing a real cultural challenge around the vulnerability and honesty to share what you feel as a leader rather than shy away from your own thoughts; sharing your instincts and feelings instead of hiding them for fear of offending.

Now I, for one, believe you can be honest about others’ performances or behaviors, your feelings on a matter that a colleague may feel differently on, or any other concept with which an organization is struggling without offending others. You can be direct, honest and empathetic all at once… and for most of us, with practice, we can do it and have others feel our vulnerability and genuine concern.

Tomasz Tunguz, a venture capitalist at Redpoint, recently wrote about this topic.  He skews toward the direct approach clearly, but has elements of empathy in his writing as well. It’s worth reading his thoughts. One statement he makes is a quote from a well-known supporter of the direct feedback, Jeff Bezos of Amazon:

Have Backbone; Disagree and Commit. “Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.”

Yes, it does require backbone to be direct. However, it also requires empathy to maximize leadership impact. Directness without empathy relies upon a leadership based in fear. But directness paired with empathy is true leadership.


David ChaseManaging Partner at Advanced CFO, has experience in small to medium private companies and large public companies as a senior operational and financial leader.  With nearly 20 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience.  Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $0.5 billion.

http://www.advancedcfo.com

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Microsoft CEO on Empathy & Leadership

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As I sat in a packed room a week ago listening to an almost mythical figure, the CEO of Microsoft Satya Nadella, I found myself fully drawn in. Here was a longtime employee of a company long viewed as dominant but perhaps also corporate, bureaucratic and stiff. Yet here was the CEO of that company, emanating warmth and vulnerability. He felt genuinely concerned and empathetic. I was further surprised then when he began speaking about leadership in terms not so much about vision and strategy, but far more interpersonal and empathetic. Little wonder, then, that the company has shifted.

Satya began a book tour after his recent publication of “Hit Refresh,” and made a stop in my town to address a packed room that was celebrating tech leadership. Days later this article appeared, and I was impressed that he remained on-point in his tour. Here is one great line from a nice summary article:

Yet, Nadella admits that showing empathy doesn’t always come easily. It must be consciously cultivated and put into practice “Now, the challenge, though, is you can’t just say—I’ll go to work and turn on my empathy…,” he said. “I’m not even claiming that empathy is innate, it is something that needs to be developed…”

In the past year of my life, I’ve also been on a journey of enlightenment around empathy in leadership. It was truly refreshing to hear another espousing some of the feelings on the subject I’ve felt lately.


David ChaseManaging Partner at Advanced CFO, has experience in small to medium private companies and large public companies as a senior operational and financial leader.  With nearly 20 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience.  Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $0.5 billion.

http://www.advancedcfo.com

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from http://advancedcfo.com/microsoft-ceo-empathy-leadership/

How to be a CEO…From 525 Interviews

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So, you’ve interviewed 525 interviews CEOs over 10 years?  That gives you street cred.  When I read the NY Times article titled, “How to be a CEO, From a Decade’s Worth of Them,” I was impressed, inspired and informed.  We’re always seeking additional insight into leadership styles, recognizing everyone has their own style.  Mimicking others styles, when they don’t fit your own well, frequently leads to incongruous behaviors and an inability to be genuine.  I was impressed because after the author interviewed 525 CEOs, he discovered three emerging trends that seemed adaptable to just about any interpersonal style.  Those three primary findings are:

  • Be curious
  • Lean into challenges, rather than away
  • Do your best in your current assignment or role

They really can be applied to just about any style or interpersonal characteristic.  Here is an article not only worth reading, but worth bookmarking and coming back to.


David ChaseManaging Partner at Advanced CFO, has experience in small to medium private companies and large public companies as a senior operational and financial leader.  With nearly 20 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience.  Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $0.5 billion.

http://www.advancedcfo.com

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