3 Low Cost Sources of Cash – Part 3

In Part 1 and Part 2 of this series I discussed how proper management of inventory and accounts receivable were great sources of cash to internally finance your operations.  You can find those two blogs at 3 Low Cost Sources of Cash Part 1 and 3 Low Cost Sources of Cash-Part 2 .

Again, as a reminder, in an earlier blog called The Big 4 Capital Users, I used the acronym CRIP to represent 4 activities that heavily impact cash.  Specifically they are:

C –  Capital Equipment.  (Fixed Assets and their financing)

R –  Receivables (Accounts Receivable along with Credit and Sales Policies)

I –   Inventory (Controls, purchasing policies and procedures, and levels carried)

P –  People (Human resources, employment practices, training, turnover, etc.)

In Part 1 we discussed inventory and how properly managing the levels carried presented a great opportunity for your company to self-finance.  In Part 2 we looked at accounts receivable and the way creating and utilizing appropriate policies and procedures for sales, credit, and collections could provide a ready source of cash as well as reduce internal conflict between sales personnel and support employees (primarily accounting).  In Part 3 I would like to look at an area that many often overlook as a key component of cash management and that is People.  But the benefits here go far beyond just improving your cash position.  Again, let me tell you a story from earlier in my career.

Shortly after taking over the management of the financial area of a company I began to notice that there were an unusual number of billing errors and that there seemed to be considerable disagreement as to who was responsible.  So, rather than make a rash decision, I decided to just sit back and observe for a while to see just what was happening.  As it turned out, the customer service group was telling a customer one thing and the billing group was getting different information to create invoices.  You can imagine the confusion of a customer when the invoices they received failed to agree to what they had been told by customer service.  To complicate matters, there was considerable conflict between these two groups.  Again, after observing closely, I realized that both groups seemed to have excess time.  The decision was made to terminate two employees (including the customer service manager) and merge the customer service and invoicing functions under the billing manager.  What were the results?

  • Over $60,000 in annual payroll savings, not counting benefits.
  • Less billing errors that produced more satisfied customers and faster payments.
  • Reduced internal bickering and a stronger team spirit within the company.
  • Better communications within the company between departments.

You may say that a little over $60,000 is not that much, but remember that this was not a one time savings but rather one that would recur year-after-year.  Plus, you cannot imagine how much better the work environment was after these conflicts were eliminated, and doesn’t every company want customers who are more satisfied.

You see, when we talk about people and the impact they have on a company we must look at more than just the financial aspect.  With that in mind, as you go about making hiring decisions or reviewing current staffing levels, consider the following:

  • What is the culture of your company?
  • Is this really the culture you want to cultivate?
  • Does the person you are considering hiring fit that culture?
  • Do existing employees fit that culture?
  • What departments have constant conflict that could be eliminated by merging certain functions or making a personnel change?
  • Do you have a particular employee or employees that do satisfactory work yet create excessive internal strife?
  • What are your customers saying?  If necessary, create a survey and follow up on the feedback you get.
  • What monetary value are your employees adding?  It is a mistake to think that only sales employees add this kind of value.  For example, a CFO should be looking for ways to reduce costs, streamline operations, and make it easier to do quality sales that can be collected.  Remember the old axiom, “Everybody is a sales person.”
  • Get “buy-in” from your employees on how things should work, even if it is necessary to involve them in developing the policies and procedures.
  • Companies are dynamic, so expect your needs to change.  Keeping and employee who is no longer a good match does no favor for them or the company.

If you would like some help evaluating your current staffing levels and structure, please do not hesitate to contacts us at Contact – AimCFO.

As always, your feedback is welcomed.

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