The old adage ‘Cash is King’ has proven especially true during 2020. The resilience of nearly every company has been tested beyond what was thought possible at the start of the year. As sales have stalled, profits turned to loss and debt skyrocketed, the importance of cash cannot be overstated.
Along with the immediate task of rebuilding post Covid-19, business owners must continue to pay particularly close attention to their ability to generate cash – not just a profit – as previously successful businesses now find themselves saddled with uncomfortable levels of debt.
Future working capital needs, debt repayment schedules and unavoidable capex requirements must feature heavily in business recovery plans otherwise such cash demands are likely to impede efforts to quickly return to ‘business-as-usual’.
Whilst H&Hendricks specialise in increasing company value and preparing business owners for exit, the principles of cash management are the same whether preparing a company for sale, optimising business performance or mounting a turnaround. Regardless of the overall objective, our immediate focus always starts with three questions regarding cash:
- How efficiently is cash generated?
- How risky are the cash flows?
- What opportunities exist to grow cash flow?
The initial steps to answering each question often starts by simply reviewing how a business manages its working capital. The resulting insights can help business owners to understand how best to optimise, de-risk and drive cash performance within their company as well as guide future investment and market positioning decisions.
Whatever your objective, by prioritising cash generation and paying close attention to cash flow, your business will potentially become even more valuable. A strong, positive and growing cash flow will also improve the likelihood of achieving your future business objectives.
Maximising Value By Design™