Cash is king – now more than ever with the squeeze on credit. With little unpledged collateral remaining after years of easy borrowing, companies are having to find liquidity in their own operations. As a result, household names such as Microsoft and Yahoo have recently announced layoffs.
Cannibalizing headcount is one way to conserve cash. The downside, though, is it results in a talent drain and a demoralized workforce, which may leave the company poorly positioned to compete. In a recent interview in Fortune Magazine, Jim Collins, author of Built to Last and Good to Great, pointed out that companies which successfully made it through the Depression “understood that it was the caliber of their people that got them through.” In these times of tight credit and plummeting sales, is there an option to layoffs? Yes – training. An overhead function that is typically among the first to be cut during economic hard times, training may actually be able to help save the day.
The Cash Visibility Problem
As a small business owner, I am very much aware – at times painfully so – of the repercussions of my decisions and actions on my company’s bottom line. In the summer of 2001, I hired a pricey marketing consulting firm to help me develop a plan and collateral to fuel the growth of my business. My timing was bad and the firm’s advice was flawed. Bottom line: I nearly lost my business when gross revenues tanked after 9/11.
I’ve had the business since 1992. So, clearly not all of my decisions have been bad, but they have impacted my personal paycheck for better or worse every time. That’s the rub. Employees of large corporations have little or no visibility as to how their decisions and actions impact their company’s net income or cash position. Many don’t even realize that a company with a positive net income can be brought down like a house of cards by a lack of cash. This is where training can come into play.
Making Better Decisions
Training can teach employees how to read financial statements and reports, as well as what levers they can personally push to affect the company’s net income and cash flow position. A workshop can also teach employees your organization’s best practices for planning, budgeting and execution.
Take a moment to test your own financial savvy. Are these statements true or false?
- Net profit equals cash.
- Managers and directors have as much control over indirect expenses as they do over direct expenses.
- Under spending is more important than accurate forecasting.
- Under an accrual accounting system, expenses don’t count until A/P cuts the check.
- The same levers that affect cash also affect profit.
- Wall Street controls EPS.
- In the short-term, profit is more important than available cash.
- Individual managers and directors have no impact on their company’s cash position.
All of the above statements are false. How did you do? How do you think your managers and directors would do? Do they know how their daily actions affect your company’s cash position? Do they know which levers they can push to impact profit? How about cash?
Of course, training is not enough. It’s important to put a mentoring program in place to ensure that employees are able to successfully transfer what they learn in training to their jobs. Finance department staff or senior level directors can be tapped to provide feedback. In addition, you might consider working with the Finance department to develop reports, if they don’t already exist, to show managers and directors their contribution to the company’s bottom line and to meeting free cash goals.
Enlisting Employees’ Help
Later in his interview with Fortune, Jim Collins tells the story of how Dave Packard and Bill Hewlett saw their greatest opportunity, not in technology, but in their ability to snap up engineers laid off by government labs that were shutting down after World War II. Success is in having great people on your side. With a little bit of financial management training, companies may be able to enlist the help of the very talent they need to save.