What Ever Happened to "Cash is King"?

by Mike Starling

Part 2 - Junior Seeks Out the WIZARD for SAGE ADVICE…

the wizard.jpgJUNIOR was always a worrier. He worried about whether there would be enough milk tomorrow morning for his corn flakes. He worried that the toilet would not flush each time he flicked the handle. He worried that he didn’t understand the importance of operating cash flow to the survival of Dad’s business. He worried about how long the current recessionary economic cycle would last. He worried that Dad would lose it all, and that his dream of someday becoming President of the family food-service distributor business would vanish into thin air. Then one day, after whacking his head on a cross beam in an empty pick location in the warehouse, it came to him. “Hey” he said to himself out loud, “I know what I should do! I should seek professional help! I am off to see the Wizard!”
Ah, the wisdom of youth! The insight of a second generation longing to insure a dream. Someone not yet stymied by professional pride. Someone wise enough to know that he didn’t have all the answers, but smart enough to go find someone who would have the answers he was searching for.

So having done the Yellow Brick Road thing (sans Ruby Slippers and diversified acquaintances), Junior arrived at the local office of the Biz Wizard, someone well versed in business challenges; someone well versed in DRUCKERESE, and an appreciation for the assessment process required to find opportunities to maximize the operating cash flow potential of a business. As he entered the lobby of the Wizard’s lair, Junior was met with a loud interrogatory question booming from the surround-sound system speakers, thundering like the theme song of TOP GUN in your local movie theater.

“WHAT is THE QUESTION, KID?” boomed the Wizard.
Shocked but prepared, Junior shot back, “How do I save my father’s business in a recession?”

“Well Sir, my dream is to take over and run the family business one day. But because of the economic downturn, Dad’s cash flow sucks. He’s not sure if he can cover the payables, and I’m afraid the business is going to crash and burn—and take my dream along with it.”

Seeing a look of concern on the Wizard’s face, Junior pressed on. “Instead of putting Dad out to pasture with the retirement annuity he deserves, I’ll be doing a self help project to convert my garage into an in-law suite! Man, I need some sage advice! Any chance you might be able to help me?”

“HEY KID, SUCKS TO BE YOU! RIGHT?” replied the Wizard. “Well maybe not. You look like a bright boy, a quick study, someone who, with the right coaching, could help Dad’s business weather the storm, and maybe even make your dream a reality.

“OK, listen up kid. I like you. It’s your lucky day. I’m going to give you some sage advice so you can pick up the ball and run with it. Who knows, you might even save Dad’s business—and his bacon to boot.”

“Lay it on me your Royal Wizardness. I’m all ears.” said Junior.

“Whether the economy is up or down, you got to remember this one thing: CASH IS KING! When the economy is down, that’s how you survive. When the economy is up, that’s how you grow the business. The Wizardry part is that you need a good Coach you can count on…and you can count on me kid. One who knows how to create piles of cash to float your boat and keep you and Dad from going down with the ship!”

“How about clarifying that “create piles of cash” part for me?” quizzed Junior.

“Okie dokie” said the Wizard. “See, I was right. You are a bright boy, so stay with me now. Are you familiar with Peter Drucker and what he calls ‘the three dials of business health’ and ‘the six levers of business control’? Well, since I am the Wizard, let me just recap them for your edification, son.

The three dials of business health are: 1) Operating Cash Flow (OCF); 2) Earnings; and 3) Return on Assets (ROA). If you want to survive, then you have to generate sufficient OCF to pay your bills and have something left over. Otherwise you wither and die on the vine. If you ain’t generating cash, you ain’t earning. If your assets aren’t generating cash, you’re screwed. See why they call them the dials of business health?”

“OK, so I need to determine if Dad’s business is healthy, right? And if we got some issues, what’s the prescription for getting well as quickly as possible? Right?” posed Junior.

“RIGHT! AND HOW DO YOU DO THAT?” shouted the Wizard. “Here’s why I AM THE WIZARD…and YOU ARE THE KID. You got to know how to set the six levers of business control to optimize your operating cash flow. GET IT? You got to know how to hold’em. Know how to control’em. When to walk away….but I digress.

“Write this down; the six levers of business control are: 1) Receivable Days (DSO); 2) Inventory Days (DoS); 3) Payable Days (DPO); 4) Margin; 5) OPEX & SG&A; 6) Revenue. Understanding which ones to pull and push, and how much, is the key to optimizing operating cash flow for the business.”

Sensing that the proverbial fog was about to lift, Junior looked up from his note scribbling and asked the obvious question: “So, how do I use the six levers to optimize Dad’s operating cash flow?”

“AH-HAA!” The Wizard danced, bustin’ a Michael Jackson Moon Walk move behind the curtain. “This is where you need the help of a wizard! Someone who understands the process, knows how to assess business financials and do the WHAT IF analysis based on the unique business circumstances of the case at hand. Someone who has the tools, the talent, and the time to tweak the six levers of business control, advising you about the operational changes that will make your dreams come true. The Wizard has the ability to look into his financial analysis Crystal Ball and tell you exactly how much cash flow improvement is possible. The big question is, will you trust the Wizard to make your dreams come true? (And that goes for Dad as well).

the wizard 2.jpgHere’s the Sage Part of this, Kid. In the first place, most people are too proud or stupid to ask for help. Second, most family business owners liken taking a look at their financial books to taking a peek into their underwear. They are really uncomfortable letting you go there. But the financials tell a story. They are a reflection of the operating decisions made in the past. If performance has been below expectations, then by doing a financial assessment and playing “what if” with some potential changes in their supply chain activities, it is possible to identify potential opportunities to significantly improve their current operating cash flow. Hey, there’s money on the table! And if you subscribe to "Cash Is King," then all these Nummies need to succeed is to find a well-seasoned coach to keep them focused on the prize—and dreams can come true."

“Mr. Wizard, I see what you mean. Dreams can come true. You just got to follow the process, focus on execution, listen to the coach, and measure results to insure ROI. Got it! Now all I have to do is convince Dad that together we can save the business and make both our dreams come true in spite of this lousy economy!”

What will he do next? Stay tuned for our next exciting installment of Cash is King!

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