Successful people will tell you to concentrate on the things you can control, be aware of, and prepared for those you cannot. Stressing about those you cannot control adds no value, the best you can do is anticipate the impact they may have, and shape your response in advance.
Managing a business is the primary example of an environment where managers sometimes obsess about things out of their control. Meanwhile, they often ignore or undermanage those they can control, and that deliver sustainable returns.
There are many components to a successful business, the only one that is common to all is cash. It is like oxygen to people, we cannot survive without it.
Therefore, it makes sense to ensure that in every decision you take, part of the consideration is the impact on cash.
Too often I see decisions made, that on the surface make some sense, but when deeper investigation occurs, are counterproductive. The most common is the almost instinctive urge to drop price to meet some competitive pressure, usually accompanied by reassurances that volumes will be increased as a result. 4 times in 5, it results in less cash, and less profitability. Management is way too often surprised at this outcome.
There are 7 things you can control, broken up into two buckets represented by the income statement and balance sheet, that have a direct impact on your cash position.
Price
Volume
Margins
Overheads.
Accounts receivable
Inventory, or in a service business, Work in progress
Accounts payable.
The first 4 are recorded in the income statement or profit and Loss, which records the revenues coming in, and costs going out that are directly influenced by trading activity.
The last three are recorded in the balance sheet, reflecting the cash value of the business and are again directly influenced by management decisions.
Each of these 7 components are linked in a macabre commercial dance, every action on one can and often does, influence most if not all of the others to varying degrees.
It is the responsibility of management to manage these levers to deliver the maximum return to the business, and ensure that decisions made are in line with the strategic priorities.
No business can survive without cash, so it is incumbent on every employee, even if just in their own self-interest, to look after the cash of the business as if it were their own.
