OCF? What the Hell Is That?

by Johnny Dollar

rock ocf.jpgIt is truly amazing how many family-owned business and supply chain leaders just don't understand what OCF really is. And, then there is the business community at large. One would expect that you would at least get a positive response from someone who understands the language of business (?) - do you? Apparently, there are few who took “language of business” (accounting) as a core business course back in their college days, based on the blank stares and hurry up and keep walking responses I’ve gotten to such questions in recent face-to-face encounters.

Calculating cash flow from operations (OCF) is fairly simple and straightforward.
OCF = EBIT + D – T

[Translated:  Earnings before interest & taxes + depreciation – taxes]

This is a great indicator of a company’s ability to generate cash from operation, an indicator of short-term liquidity. Get the picture? In this economy, if you ain’t liquid in the short term, chances are you will soon be gone.

So how do you go about promoting interest in OCF? How do you raise the awareness of what OCF is? Or what it does? Or why it is necessary? Or is it? Or does anyone out there really give a rat's-ass about OCF?

Where are you, you seekers of knowledge? Is this a taboo topic? Is it something that is classified as “confidential”? Is it something that is politically incorrect? Is it something that wives don’t tell their husbands about? What the hell is it?

OK, lets go ask a small business owner, “How’s your OCF?” Most respond, “Hey, my OCF is OK!” (Now go away, don't bother me kid). Believe it our not, this is intended as a serious question, since I view my role as someone who provides help and coaching on ways to improve your short term liquidity.

So, if your OCF is OK, does this mean that:

a) You don’t have to come back for a checkup for 12 months instead of six?
b) You get a discount on your next purchase of a box of Froot-Loops?
c) You qualify for a special tax deduction on your next state tax return?
d) Your “ancestor.com” information needs to be updated ASAP?
e) All of the above?
f) None of the above?

While I firmly believe that the vast majority of "C" level incumbents in independent family-owned businesses know what "OCF" is, the reality is that some may not pay sufficient attention to finding ways to improve upon what they have until the stuff hits the fan and they find themselves in a cash crunch.

Conversely, if you are a “C” level incumbent in an independent, family-owned business, and you don’t know what your OCF is at the end of every month, shame on you! You deserve whatever comes your way. Unfortunately the family and your employees are counting on you to lead the way to financial success. Time to get with the program? Crank it up a notch?

If you aren’t a “C” level employee, at least you should be aware of what OCF is, what stands for, and why it needs to be monitored closely. Right? (Your job just may depend upon how you go about contributing to OCF).

So, “Hey you! Small business owner! President! CFO! Yes, I’m talking to you!”
Johnny says, “if you know what OCF is, (and we both can agree that it is a fair way to assess whether your business is doing well) then you should contact me immediately, as I may be able to help you triple your OCF within the next six months.” This promise comes with the caveat that your top management must support such an initiative with a warrior-like commitment.

You got the guts to make a commitment like that?
What do you have to lose?
Could be your lucky day!

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