The old saying “Revenue is Vanity, Profit is Sanity, Cash is reality” has never been so true, Cash never lies.
When I am asked to explain why Cash is so important, I use the analogy of building your dream home. In order to build that dream home and give it the best chance of standing there for years, it needs solid foundations. Likewise, an organisation needs cash to survive and grow, it needs cash to survive day to day and without it, an organisation has no foundations and eventually collapses.
Over recent years, some extremely successful organisations have gone into administration, the world has never been so volatile, businesses have never been so vulnerable.
Over the years, I heard leaders say, “we don’t need to worry about cash, we’ve got good reserves, we haven’t got an aged debt problem” but we’ve seen that even these companies have had their cash levels turned upside down.
Household names that were once so strong have shown their vulnerabilities, the likes of Debenhams forced to close their high street stores.
So, in this world of volatility and vulnerability, the questions I will answer are how can FP&A business partners help to keep on top of our cash position? What daily actions can FP&A to give our companies the best chance of survival?
Let me share some of my top tips on how to be a better cash business partner.
1. Get to Know Your Stakeholders
Thinking back to the solid cash foundations, the first action is to build and invest in strong relationships with your key cash stakeholders. If you have a treasury team, make sure you are joined at the hip. Make time to have regular check-ins with them: it could be as little as 20 mins, bi-weekly or monthly. Great business partners build strong relationships across their stakeholders.
FP&A are the ones that see the helicopter view, for example if a major contract is signed or you are see a change in wholesale prices, it’s critical this is flagged as early as possible. It’s important to constantly be “scanning” and “thinking” with your cash hat on.
If FP&A is responsible for cash flow forecasting, keep close to your sales teams, accounts receivable, purchase ledger teams and procurement.
In a previous role, I would regularly meet with the sales and account receivable team, allowing me to influence the sales team with payment term negotiations, so we could ensure cash was in for quarter end.
The accounts receivable team would also flag to me if we had any problem accounts so I could get the right sales teams involved to resolve the issue.
I’ve often found, it’s worthwhile inviting the person responsible for cash flow forecasting along to P&L reviews, enabling them to see how the story is evolving. They feel valued and not just an after -thought by involving them in the process.
2. Challenge Assumptions
Once you have built those strong relationships, the credibility built will allow you to be able to challenge the decisions and assumptions impacting cash
So how do we challenge effectively?
It’s not about going in there and telling someone you don’t agree with their numbers. Instead, ask open questions to get clarity, for example if you are working with sales use questions such as “What needs to happen to get this contract signed? What are the blockers? What are the reasons to believe we will hit this cash target?
3. Introducing a Cash KPI to Management Reporting
Introducing a cash KPI will help to focus leaders on cash. I’ve seen some companies add cash received elements to their compensation plans, FP&A can be a “seat at the table” when these discussions are happening, if they have formed the right relationships.
4. Stress Testing
We’ve all taken that attitude at some point of “it’s never going to happen to us, it happens to other organisations”
But with events such as cyberattacks on the increase, it is essential to work with stakeholders on stress testing, so you have clarity on your vulnerable areas and the potential impact on cash.
For instance, what would happen if there was a cyberattack that took your website down for 14 days? What if the global semiconductor crisis continued for another 18 months? What happened if one of your top customers went bust? How long could the business survive for?
5. Run Retros
We’ve recently introduced Retros into our wider finance teams. We look at what went well, what could have gone better, actions to be taken. These have been very effective at improving processes and operational efficiencies
So, what one action could you start, stop or continue doing today to make you are better cash business partner?