Are you a good steward of your company? A steward is someone who uses resources wisely and is concerned about the sustainability of the business. Managing cash flow, employee relations, and innovation are all parts of stewardship.
Why is it important to be a good steward? For one thing, stewardship increases the company’s value and its ability to respond to economic downturns. It helps make the company more attractive to lenders, potential employees and external partners such as suppliers and customers. By focusing on growth, relationships and brand development, executives who are good stewards serve not only their company, but also their customers, employees, suppliers and stakeholders.
Measures of good stewardship include:
- Cash-to-cash cycle
- Employee turn-over rate
- Machine downtime
- Cost of capital
- Revenue growth
- Profit growth
- Customer lead-times
A good steward manages cash flow effectively. Over the years, I’ve seen several apparently profitable companies go bankrupt because of poor cash management. Carefully watching inventory levels, accounts payable and accounts receivable are the first steps to sound cash management, and tracking the all-important cash-to-cash cycle is vital to keeping a company healthy. Numbers under 100 days are good and less than 50 days are great.
In a recent newsletter, I mentioned that bankers see cash management as more important than gross profit margins when it comes to measuring the effectiveness of company management. Recently, I helped a client reduce their inventory from approximately $12 million to about $4.8 million resulting in a dramatic reduction in their cash-to-cash cycle. Do you know your cash-to-cash cycle?
Even in tight lending environments, strong stewardship can attract money. Not only is a well-managed company appealing to lenders, but also the rates at which you borrow money could be lower. Several bankers have recently told me that they have some flexibility in their rates depending on the strength of company management, and those rates can vary by up to 2 full points! On a $2 million credit line, that can be $40,000 per year in increased profitability. In addition, bankers are less likely to require costly audits and reporting.
One of the top indicators of stewardship is the partnership you develop with your employees. That partnership is essential to your company’s health. A good measure of your relationship with employees is your turnover rate. High turnover has a negative impact on quality, productivity, customer service, the knowledge base, and profitability. It can be exceedingly costly to replace employees, not only in search fees, but also training, loss of productivity during the change, and broader productivity loss due to potential morale issues.
Many companies are using Lean as a means to reduce waste and improve productivity and competitiveness. If you decide to do a layoff as a result of the improvements you make, the improvement process will not just stop, but likely regress back to where it was before you started the Lean initiative.
Lean starts with culture founded on trust. I tell many of my clients that they need to make any cuts before they start a Lean transformation, and then announce a no-layoff policy during the Lean efforts. Otherwise you’ll get little or no support for the process. As the initiative moves successfully forward, recognize and celebrate employees’ role, and plan to share the benefits with them. I’ve been working with a unionized client on a Lean initiative and we’ve gotten great employee support by using these practices.
Having a strong vision, planning for the future, and leveraging your capacity all contribute to good stewardship. Aiming for growth rather than just problem solving and waste elimination helps build your reputation as a strong company. Having solid equipment maintenance and training programs for your employees allows your fixed and human assets to support your goals for the company. This not only safeguards your invested capital, but maximizes your return on investment.
Being a good steward can lead to strong growth and profitability, wise use of resources, providing for the company “family,” and living up to company values. Are you a strong steward for your company? How do you know?
© 2014 – Rick Pay – All Rights Reserved