Cash Flow: Not Just For the CEO Benjaminsz

Often considered to be the domain of the CFO, cash flow can be impacted by more than just finance and accounting. Sales, operations, supply chain and others can dramatically impact the speed with which cash flows into and through the organization.

Being able to look at your entire business model and see ideas to improve the cash-to-cash cycle requires outside the box thinking. Challenging what is possible and making no excuses can free up potentially millions of dollars in cash flow. How would you spend an extra couple million dollars?

To read more, visit this edition of Growth Accelerator.

© 2019 Rick Pay – All rights reserved.

New Book: Moving Into the Express Lane

I’m pleased to announced that my new book is available on Amazon.

Moving into the Express Lane: How to Rapidly Increase the Value of Your Business, will show readers how to exponentially increase their company’s value by aligning operations strategy with the business model. Increasing a business’s value and potential sale price is important for business transitions as well as for ongoing operations to accelerate revenue growth, increase profits and cash flow, and to allow the company to increase capacity and grow without capital expense. Many companies focus on implementing tactics, such as lean, without a strategic framework, which renders their efforts fruitless. By taking a holistic operations-based view of strategy and tactics, executives can exponentially improve their company’s value.

© 2018 Rick Pay, all rights reserved.

It All Comes Down to Cash Deluxe

Who in the organization drives the cash-to-cash cycle? Most company managers assume the CFO is managing cash, so they don’t think much about it. But in realty, how sales does their deals, how purchasing buys, how supply chain designs the distribution/warehouse network, how engineering designs products and how marketing and product management bring new products to market and retire old ones all play major roles in the cash-to-cash cycle.

For example, if purchasing makes large volume buys in an effort to get deeper discounts, or if they buy truck-load quantities in an effort to reduce freight, that can have a negative impact on inventory turns, which increases cash consumption. If product management focuses on new products and not on old or obsolete products, the warehouses can accumulate obsolete inventory, which also consumes cash.

To manage cash flow effectively, companies must do more than just improve efficiency and save a few days of cash flow; they need disruptive thinking and innovation to really move the needle. Techniques such as supplier partnerships, auto-replenishment systems, effective terms with suppliers and customers, product design for supply chain management (DFSCM), and just in time inventory and production can greatly reduce the need for cash and can be woven into the operations strategy.

© 2017 Rick Pay, All rights reserved.


This is an excerpt from Rick’s upcoming book, Moving Into the Express Lanes, being published in 2018 by Business Expert Press.


The Bank Owns Half Rolicki

I recall a conversation I had with a CEO client about the fact that his company had more inventory than it needed. He looked at me and said, “What difference does it make? I don’t own it, the bank does.” I was speechless.

When banks provide lines of credit, they primarily lend on Accounts Receivable. For companies that have inventory, the bank will often lend on a portion of that as well. The primary consideration for the bank is how easily the inventory can be turned into cash, therefore, the maximum the bank will lend on inventory is usually limited to 50% of current value. Occasionally that might be higher or lower, but 50% seems to be the number in the current market. That means the company, owner, and investors own the other 50%.

To make matters worse, before the bank calculates 50% they’ll often eliminate the old or obsolete inventory from the total value. Normally this is anything more than a year old, but it could be a longer time horizon if the inventory is easily converted to cash. But it’s fair to say that the bank owns half, and it’s the good half. The owner owns the remaining (slow moving) half.

Do you own half of your inventory? Is it the bad half? Can it easily be turned into cash? If not, your half is slowly eroding and costing you profits and cash flow every day.

© 2017 – Rick Pay – All Rights Reserved

Cash Flow: Not Just For the CFO Benjaminsz

Often considered to be the domain of the CFO, cash flow can be impacted by more than just finance and accounting. Sales, operations, supply chain and others can dramatically impact the speed with which cash flows into and through the organization.

Being able to look at your entire business model and see ideas to improve the cash-to-cash cycle requires outside the box thinking. Challenging what is possible and making no excuses can free up potentially millions of dollars in cash flow. How would you spend an extra couple million dollars?

To read more, visit the latest edition of Growth Accelerator.

© 2017 Rick Pay – All rights reserved.

You CAN Sell Out of an Empty Wagon

“You can’t sell out of an empty wagon,” is a favorite saying among salespeople, meaning that you have to have inventory (usually lots of it) to quickly serve your customers. But it just isn’t true! In fact, if you have a successful Just In Time (JIT) supply chain management process, often the less inventory you have, the better you can service your customers. Here’s why:

  • Lower inventory leads to having the right inventory in the right place at the right time – true JIT inventory management.
  • Inventory buffers often lead to obsolete inventory.
  • High inventory levels jam up the warehouse and make it harder to quickly find and pick what you want for shipment.
  • Large amounts of inventory often lead to inaccurate records, so you don’t know what you have or what you need, resulting in stock outages.
  • Too much inventory requires more storage capacity, which raises the cost of holding inventory and reduces profit.

These are just a few of the ways excess inventory hurts profits and cash flow. By running a true JIT system, you can better serve your customers and yes, you CAN actually sell out of an empty wagon.


© 2017 – Rick Pay – All Rights Reserved

Are You Ready?

Sutton Foster is a Tony Award winning Broadway star. She wasn’t always in that position, though. In a story on CBS Sunday Morning (Dec 12, 2016), she talked about her days as an understudy for Broadway shows. As understudy, she was the actress in waiting, preparing for her big chance. She learned all of the lines and the choreography, but never actually played in front of the audience unless something happened to the regular actress.

After years in this position, she got her big chance when a director called her to play the lead role in Thoroughly Modern Millie. She won her fist Tony Award for the role. She said, “One of the things I’m most proud of is that the opportunity came and I was ready!” That meant she was prepared, knew her stuff, had worked hard and could step in.

Is your business ready when the role of a lifetime comes? Can you take advantage of that big sale, new customer, or new product roll-out?

To be ready, 1) keep your vision in mind, 2) have a strong business strategy to attain the vision, and 3) have a solid operations strategy to ensure you have the capacity, cost structure, cash flow, speed and agility to meet the challenge.

Are you ready for the role? Can you respond in award-winning fashion when you get the call? If you would like an assessment of your readiness, let me know.

© 2016 – Rick Pay – All Rights Reserved

Rapidly Increasing the Value of Your Company

Many business owners consider succession planning as they age, change life objectives, or decide to move on from their business to something else in their life. Many baby-boomers are considering the sale or transfer of the company they’ve spent their lives building and they want to maximize the value they receive in the transfer. These transfers can include an outright sale to either a financial buyer or a strategic buyer, or transfers to the management team, family members, a trust, an ESOP, or other “buyers.” Regardless, the objective is to maximize value so the owner’s wealth is also maximized.

A rule of thumb for establishing a company’s value is a multiplier times EBITDA (earnings before interest, taxes, depreciation and amortization). For manufacturers and distributors, that multiplier is usually between 5 and 7, but that can vary with industry and buyer. Sometimes the value is significantly different due to the buyer’s strategic objectives. An example is when Krave sold their jerky operations to Hershey for almost 10 times revenue, a number that greatly disrupted industry valuations in the snack meat industry.

If you want to quickly boost the value of your company there are five elements you should consider. The first three are often used by private equity firms and others to help determine value:

  • Profit growth
  • Revenue growth
  • Free cash flow

The next two are used by both private equity and strategic buyers:

  • Strength of the management team
  • Innovation

Take a look at these factors in your company to see how you can quickly improve the value of your company and its attractiveness to potential buyers. It could really move the needle in a positive way for your personal wealth.

© 2016 – Rick Pay – All Rights Reserved

What Bankers Want

A good banker has your best interests at heart and can be a key advisor to your business. Not only do commercial lenders provide lines of credit and short term cash flow, but they can also offer import/export cash management and protection assistance, cash for expansion and growth, and advice and counsel about a number of issues related to your business. Of course bankers can’t tell you how to run your business and they walk a fine line to keep the regulators happy, but most mid-market bankers I know are excited to help their clients in any way they can.

So what does a banker look for in a well-managed, bankable business? First and foremost, the ideal owner is honest, realistic and communicates openly with accurate information. They have a clear strategy and the team to execute it. They have a strong succession plan and allow their team to run the day-to-day aspects of the business while they focus on developing a vision and strategy for growth and profitability.

Second, bankers tend to focus on the balance sheet more than the income statement. Of course they want the company to be profitable, but over the years, I’ve seen many “profitable” companies run out of cash and end up in the ditch. Bankers look for a strong relationship between asset and liabilities and a short cash-to-cash cycle, which is the number of days from when you spend a dollar on goods and services to when you get it back from the customer. Inventory is a particularly big part of that.

Third, bankers look at how companies manage capacity. Is the company ready for growth? Do they have the resources to support it? Do you need to work with your banker on a capital line to support expansion?

Use your banker as a key advisor. They can have a useful perspective on your company, and if they don’t, perhaps it’s time to seek a new banker. Your successful future might depend on it.

© 2016 – Rick Pay – All Rights Reserved

Reduce Complexity To Reduce Costs

Many executives ask me how to reduce costs more than the 3% – 5% often required annually by customers. Through many client engagements I’ve found that companies  can reduce costs exponentially by reducing complexity. Companies of all types complexify the simple by allowing numbers of parts, suppliers, employees and so on to increase over time without considering what that does to costs.

There are several things you can do to simplify processes and reduce costs:

  • Reduce the number of parts you carry – on an annual basis, eliminate those items that represent the least amount of sales in your portfolio. By developing a report on SKU movement, you can sort by number of units sold and see those SKUs that have low or no part movement. Eliminate the bottom 20% and you will reduce transactions in purchasing and accounting, warehouse space, cost of holding inventory, and obsolete inventory.
  • Reduce the number of suppliers you buy from – if you buy a particular part from more than two suppliers, not only are you increasing costs, but you’re also introducing variation in quality which can result in even larger costs. Properly reducing the number of suppliers per part does not increase risk as some supply chain professionals think. Conducting an annual supplier rationalization exercise provides opportunities to reduce costs and receive higher volume discounts, all of which can dramatically improve your materials costs as a percent of sales.
  • Improve product management through Ramp-down – this is the process of managing the backside of the product life-cycle curve. By managing older products and eliminating them in favor of newer products, not only do you keep your product assortment fresh, but you reduce the cost of obsolete inventory, reduce warehouse space taken by slow moving items and reduce inventory, thus freeing up cash.

Reducing complexity can have many benefits, not the least of which is dramatic improvement in profit and freeing up cash. Studies are easy to conduct which will show if you have overly complex processes and how to simplify to accelerate profit and growth.

© 2016 – Rick Pay – All Rights Reserved