As published in “Southwest Florida Business Today”, January 2021

For many years, companies paid little attention to cash flow. The focus was on sales and profit. It was assumed that there was enough cash in the bank, or in the cash drawer, to pay the bills. “After all,” it was thought, “we’re profitable, so there must be plenty of money.”

Businesses (and investors) began to realize that profit margin alone was not enough to insure real financial success. Understanding where those profit dollars go, and how much is really left over (and when) is very important. You don’t need to be an accountant to understand this, but you should learn the basics of cash flow and how it effects your business.

Whether it’s a lemonade stand, or an automobile factory, to sell a product, you first spend money to buy supplies. Then you pay your workers to make the product. Finally, you sell the product and get paid by your customer. The cash you receive from those sales can buy more supplies and pay workers to keep the business operating. But, timing is everything …and is all the cash in hand always yours?

Using the lemonade stand as a simple example, suppose you borrow $20 from Dad and buy a card table, chair, and a pitcher at a yard sale for $13. You go to the store and pay $7 for lemons, sugar, bottled water, ice, and cups. You make $15 selling all your lemonade that day. You have $15 in hand! Woo hoo! Wait a minute – you spent $20, which you owe Dad, and you only have $15. That’s negative cash flow of $5 for Day 1. OK, the next day you pay Dad $8, use $7 to buy more ingredients, make more lemonade, sell it, and earn another $15. You spent $15 and received $15 – zero cash flow for Day 2. Ugh. Well, that’s an improvement anyway. On Day 3 you pay Dad $8 again, and pay $7 for more ingredients, and sell the lemonade. Again, you have $15, but you spent $15 – zero cash flow again! On Day 4, you give Dad $4 to complete your loan repayment (fortunately, he doesn’t charge interest), buy the ingredients for $7 and sell out the lemonade. Now you have $15 again, but you only spent $11, so for the first time you have positive cash flow – wow! $4. That’s your money! Despite the fact that you were technically “profitable” every day, your cash flow wasn’t positive until Day 4. Hopefully you get the idea – paying attention to cash flow is important.

This lag between the time you spend the cash and when you get it back is a big deal. If you give customers credit so they can pay you later, this time increases. Think of managing cash flow as getting the money you earned sooner, which gives you better financial flexibility to buy supplies and invest in your business. Who doesn’t want their money sooner?

What kinds of simple actions can you take to increase your cash flow?

1. Collect your money from your customers as soon as you can and put it to work for your business. I’m always surprised by how many businesses don’t cash checks for days, or even weeks after receiving them. That’s crazy! Put it to work right away paying debts, buying supplies, earning interest, or investing, or just saving for a rainy day (literally, for the lemonade stand).
2. Manage your supplies. If you buy a month’s worth of lemons, you might get a slightly better price, but all that money is gone, some of the lemons might go bad, and you may not have enough cash left to buy the rest of the ingredients. Maybe a few days or a week’s worth of lemons would be better?
3. Manage your “finished goods” inventory. Don’t make more than you can quickly sell. It’s great to be able to respond quickly to customer demand, but don’t have too much of your money tied up in completed products waiting to be sold.
4. Work with your suppliers to develop a plan to pay them as long after their delivery as possible. What if you bought your lemonade ingredients with a credit card? For most of the month, you would actually get paid by your customers BEFORE you have to pay for the ingredients.  But, make sure you save enough of those profits to pay the credit card bill at the end of the month – in full!
5. If you can, raise your prices to increase your profit margin. This can be dangerous if you are in a highly competitive market. You might actually lose sales, so be careful.

Monitoring and controlling your cash flow should be a high priority. It can be an indicator of your business’ financial health, and a critical tool for improving the way you can spend, invest, or save money. Cash is, indeed, king!

Copyright 2021 Seabreeze Associates, LLC

As published in “Southwest Florida Business Today,” December 2020

Whenever I took on a new role, I started out by sharing “ground rules” with my new team. This was a set of guidelines on how we were going to operate. One such rule was that each staff member’s opinions and recommendations were not limited to their specific role or functional area. Rather, I proposed, we will all act in the best interests of the business or project as a whole, and we will all have a voice. All thoughts will be welcomed, and everyone will be encouraged to join in the discussion on all issues. (Something like US Senators are supposed to do, but that’s a different conversation, and subject to a lot of political debate!)

You’ll be surprised how often an engineer can make very useful suggestion about a marketing issue, and vice versa. Or how often a business manager can offer beneficial advice to the manager of a completely different, unrelated business.

This open discussion will not happen without encouragement, and it will not always seem productive, but it is well worth doing. Studies have consistently shown that collaborative discussion will result in a better outcome than an individual decision almost every time. Some of you may recall participating in team training exercises that involve survival situations – i.e. your airplane crash lands in the arctic and you have a list of items that have been salvaged from the aircraft. You must prioritize these items based on their ability to keep you and your team alive and help you get rescued. First, each of you ranks the items individually, without discussion. Then the team gets together, discusses the situation, and comes up with a ranking. All of the results are then compared to the ranking done by survival experts. The developers of these exercises claim that 97% of the time, the team rankings are better than any of those done individually. I have used these exercises for many years, with many different kinds of participants, and found this to be very accurate. The group does better.

But there’s a downside. It takes a lot longer to get a group answer than an individual one. You need a lot of patience. The process requires discussion and debate from everyone. In short, it is effective, but not particularly efficient. But it will pay off.

Sometimes the boss assumes he or she is the smartest person in the room. He or she is thinking, “I was the one chosen to be boss, so I must be the smartest!” and therefore most qualified for all decisions. That’s a badly flawed assumption. Everyone on your team should be smart and effective, albeit in different ways and in different subject areas. If they aren’t, why are they on the team? The key is to tap into these different perspectives and experiences to get fresh ideas. Why limit yourself to your own ideas? Embrace diversity and have the patience to draw it out – you’ll get better results.

This won’t happen by itself. You must encourage and reward it. For example, you may need to tactfully quiet a “Type A” team member who is dominating the conversation with his or her ideas so you can request input from one of your quieter members. Try something like, “Thank you Mary – that’s great input, but let me turn to Bob for a second. We haven’t heard your thoughts on this yet, Bob, what do you think?” You might get some really great ideas that you would have otherwise gone unsaid. This is called “gate keeping.” It’s a critical role you should learn to do, so you hear from everyone. Remember, the loudest ideas aren’t always the best. Continually listen carefully to each input, but monitor the room while the debate is going on. Make sure everyone gets some input. In the end, hopefully you’ll reach consensus with a great solution. If not, you’ll need to make the decision, but that’s the subject of another column….

Surround yourself with smart, effective people with different backgrounds and experiences. Let them speak. Listen carefully. You’ll come up with better solutions, almost every time.

Copyright 2020 Sea Breeze Associates

As published in the “Long Island Business News,” December 2020

One of the most controversial and debated issues in any business is rewards and recognition. Who gets rewarded? How much? Is it enough? Too much? Are we rewarding the right behaviors? The questions go on and on.

Rather than focus on bonuses, merit pay, and other more formal HR policies, let’s focus on how you can reward small, but important behaviors that are integral to building and supporting your company culture.

In summary, “catch someone doing something right” and reward it. This need not be elaborate or expensive. In fact, it is amazing to see how well small gestures are received and how motivating they are for employees. Here are some suggestions:

As a boss or supervisor, walk around the facility regularly and interact with employees. Make this a habit. This is a great time to thank someone for something they did well. Take the time to learn about them, professionally and personally, and ask about these things when you visit. Don’t be superficial – they will see right through it and then dread your future visits. Be sincerely interested and engage. Yes, this takes time and effort. Do it – it is important. Done correctly (and sincerely), this will translate to “I care” and it will go a long way with employees in establishing trust. Nothing is more critical than establishing trust with your team and co-workers.

Keep some small gift cards around. When an employee does something out of the ordinary, thank them and offer a gift card as a small token of appreciation. If you’ve done your job in the suggestion above, you’ll know if this person loves Starbucks, or Dunkin, or Target, and you can give them the right card. Once I bought a box of various gift cards, and left it with the office manager, Karen, whom everyone knew and liked. I announced at an “all hands” meeting that any employee could award a gift card to any other employee. The only requirement was to fill out a brief explanation of why the card was being awarded and leave it with Karen. No request would be questioned or denied. There were a lot of doubters when I started this, “They’ll just agree to reward each other for nothing and the cards will be gone in no time!”  That didn’t happen. It took a little time before the system was used, but once employees learned that there were no strings attached, they used it to reward real actions by their co-workers. The employees loved it.

Hold “win” parties when measurable progress or significant milestones are met. A simple, inexpensive menu of pizza, salad, and soda is fine. If you can, hold it in the cafeteria during employee lunch hour, so employees don’t have to attend on their own time. And yes, do it for the off shifts, too. And make sure management shows up!

Another technique – at any holiday or “win party,” have the boss and the supervisors serve the food and drink to the employees. Ask them to wear aprons and chef hats. Make sure they smile, interact, and thank the employees as they come through. Skip the speeches. They should eat last. And sit at a table with employees, not other managers/supervisors.

Plan to take a few hours on a Friday afternoon when the weather is good and have a simple employee picnic. Again, just simple food and drink and some fun activities and simple prizes. I used to rent a dunk tank and sit in it myself. There was a long line to try to sink me, but the employees loved it! I once added a “Rube Goldberg” contest for the engineering department. I volunteered for the contraption that looked like the old game “Mouse Trap.” If it worked, it would finish with a pie sprung into the face of the seated “subject” (me). It worked. By the way, if you have the choice, pick shaving cream, not whipped cream. The whipped cream sours really fast and you’ll be followed around by cats all day. Guess how I know that.

There are many other ideas like these that you can use – be creative. Seek to reward positive behaviors and actions. But, don’t use these rewards for employees “doing their job” – that’s why they receive a regular paycheck.

Small gestures carry a lot of weight if done correctly. They have an outsized effect on employee morale. Make a commitment to do them and then enjoy watching the results.

Copyright 2020 Sea Breeze Associates, LLC