Leading Your Business: Inside and Out
Lessons on leadership and cash management for entrepreneurs managing the new normal.
Korn Ferry, a global organizational consulting firm that specializes in executive search, has completed almost 70 million assessments of executives. One of their most interesting findings is what makes a great leader — the best-in-class who are among the top 20 percent. Research shows that three of the four qualities of a great CEO are: (1) sets vision and strategy; (2) drives growth; and (3) displays financial acumen. The fourth is managing crises; this is the one that is often overlooked.
Let us look at items 4 and 3, respectively, especially since we now find ourselves in a health and economic crisis.
As a leader there are some key strategies to employ in your business, especially during our current times. These proposed strategies are probably not new, but now is a good time to reinforce.
Anticipate what lies ahead. Be mindful that everyone is living in fear due to the lack of information about what to do and what will happen. Take time to check in with your stakeholders to see how they are doing. Hear what worries them so you can anticipate the impact of their worries on your business.
Navigate and be ready to course correct in real time. There are not a lot of answers right now, but lots of options on how to proceed. Now is not the time to delay decision making. Navigate forward but allow time to reflect and review the impact of your decisions. Often there is not a clear right or wrong answer, and the impact of your decision can always be course corrected if you make time to reflect and revise. As you take a stance, be willing to change.
Communicate concisely and often. Silence allows others to create their own narrative about a situation. Do not allow the wrong story to be created. Communicate regularly with stakeholders. It does not have to be book chapter length, but a quick email or even text is a positive sign. Use blogs for massive audiences, email or Slack for team communication and text for 1–1 communication.
Listen carefully and be open to hear even what you don’t want to hear. Listening is not a screening tool. It is a tool to gather data and make good decisions. Allow more time than usual for people to share — personal and business concerns or ideas. It is not the job of the CEO to have all the answers and inputs, but it is up to you to make a good decision based on all the information available, not just what you want to listen to.
Learn from experience — yours and others. Take time to listen to peers and colleagues and learn from their successes and mistakes. Take the time to refresh your understanding of cash management, HR policies, etc. Learning is a means, not an ends.
Once you are able to demonstrate external leadership, it is important to look internally and take charge of your finances. Since many financial institutions are closing or hours have been curtailed, it is important to start with cash management to know how much time you have to make other decisions and pursue other courses of action.
First, get a handle of your finances over the next 30–60–90 days.
• Check your current bank balance and reconcile.
• Note outstanding accounts payable and receivable and prioritize payment and collection.
• Delay and stretch Accounts Payables as late as possible without damaging your credit standing.
• Speed up the collection of Accounts Receivables by considering changing your credit terms, credit standards and collection policies. For example, cash discounts should be given for immediate payments or payments within 10 days of invoice to encourage customers to speed up the payments.
Once you have done this, then take time to understand your cash cycle. Your cash cycle is the amount of time cash is tied up between payment for production inputs and receipt of payment from the sale of the resulting finished product.
• Cash cycle = Average age of Inventory + Average collection period — Average Accounts Payable period
• Cash turnover = Number of times cash is used during the year = Number of days in a year/Cash cycle
Second, with respect to inventory, be sure to review inventory and production procedures as needed. More specifically, look for ways to increase the inventory turnover, avoiding stock-outs or shortage of stocks. This can be done via the following considerations:
• Increasing the raw materials turnover by using more efficient inventory control techniques.
• Decreasing the production cycle through better production planning, scheduling and control techniques, which will lead to an increase in the work-in-progress inventory turnover.
• Increasing the finished goods turnover through better forecasting of demand and a better planning of production.
Finally, develop policies and strategies that will help you in the next quarter or remainder of the year. An example may include:
a. Accounts payable increases by 15 days
b. Average age of inventory reduces by 20 days
c. Speed up collection by 25 days
d. Executive approval required for all purchases over a given threshold
Whatever your new policies or strategies, be mindful of the potential tradeoffs:
1. If the accounts payables are postponed too long, the credit standing of the firm may be adversely affected.
2. A low level of inventory may lead to a stoppage of production as sufficient raw materials may not be available for uninterrupted production.
3. Restrictive credit standards, credit terms and collection policies may affect credit sales.
These are just a few activities that entrepreneurs need to build (back) into his/her To Do List over the next few months. Now is not a time to panic. It is a time to exhibit patience, go back to basics and reflect on the items that may have been outsourced or delegated to an accountant or CFO/COO. Your first-hand knowledge may take more time but will be invaluable in understanding the depth and breadth of all key aspects of your business to make good decisions moving forward.
