Lean Assets

You may have never heard the term lean assets. It’s really refers to both a mindset and assets. Here is what I mean by that.

Laying the Groundwork

This is really part of a series of articles intended to address having adequate cash to operate your business. It started with Where is the Cash and continued with Stop Giving Away Sales and then Inventory Management Shortcut . The last two provided some specifics on things that can have a significant impact on cash. Now let’s close this series with a summary.

Lean Assets Defined

Lean assets as I’m using the term, other than referring to a mindset, means having only the amount invested in assets that is actually needed. The reason the mindset is part of this is that unless company management in on board with operating in a lean fashion, it is highly likely that at some point the company will become bloated with excess amounts in such areas as inventory and accounts receivable.

Think Lean

It is important that management is deliberate in controlling the amounts tied up in accounts receivable, inventory, or any other asset. If an item being sold can be reordered and received in stock in a month or less and sales forecast are relatively accurate, does it make sense to have enough of that item to cover six or more months of sales? That is not utilizing the concept of lean assets which means having the amount of assets actually required and not more. Management needs to focus in on reducing excess inventory and in the process generate cash.

The same thing goes with accounts receivable. There is nothing inherently wrong with having accounts receivable. There is, however, a problem with allowing customers to take advantage of you by allowing them to continue buying from you even when they are 60, 90, 120 or more days past due in payments. I recognize it can be difficult to obtain customers, but at the same time you don’t want to give away your products. So, make it a standard practice to keep receivables under control. The more past due a customer becomes the greater the likelihood you will never get paid.

So, if you want to have adequate cash without having to borrow excessively, make sure you have lean assets. Control inventory, collect receivables, and buy used furniture and equipment if possible.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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