Where’s my cash?!
We’ve all had that moment while looking at the Balance Sheet or Cash Flow Report after a good quarter, thinking you’ll be flush with cash—then getting a big surprise.
So what happened? Over-inventory happened. Getting comfortable happened, and you froze your money.
Look around your office and ask yourself how much money is frozen in it. A couple grand of cash in your computer. Anywhere from a few hundred to a few thousand in your desk, depending on your taste.
Lean thinking isn’t about being comfortable. It’s about seeing your money frozen all around you and looking for ways to:
1) thaw it so you can use it and
2) freeze less moving forward.
Over-Inventory: Keep your Eyes on the Data
This is public enemy #1, and a classic killer of businesses across industries. It’s borne, ironically, from optimism.
Business is growing, therefore we can sell more product, therefore we need more product to sell. That’s both the way our businesses grow, and the way our businesses paralyze themselves.
We want more than anything for our businesses to grow. We want it so much that we let our hopes and dreams cloud the real picture of what’s happening.
Whether you’re a manufacturer or a reseller, ask yourself this question when your revenue rises: is it a long term trend, or is it a fluke?
(Hint: when you ask the first 10 times, your sense of hope will answer for you. Keep asking until you can give yourself an answer based on figures, not figments.)
When you buy or produce a widget, you’re voluntarily freezing your money into it. The widget is actually an ice cube, and you can’t access the money chilled into it until a customer buys it. Buying = thawing, and then you can use the money again.
Follow the data. If your business is on a real growth trend, buy or ramp up accordingly. If it’s a fluke, you’re throwing wads of cash into the freezer.
When all your cash is frozen, you’re paralyzed. You lose flexibility in your business decisions, lose the ability to add capital or improvements, and you become desperate. You discount harder than you should have to just to get some liquidity back.
And that’s the business killing cycle.
If you’re not careful, it’s easy to freeze money in unrecoverable ways.
As an exercise, draw a line down the middle of the biggest white board you can find. On one side header write, “what my customers care about.” On the other side write, “what my customers do not care about.” It is exactly that simple.
Start writing down everything you spend money on. Your customers care about electricity because you can’t operate without it. Your customers do not care about your hockey tickets or new company iPhones. How many printers do you need in the office? What sort of decorations? What does the customer care about?
When it starts to feel uncomfortable, and you’re resisting putting things in the “don’t care” column because you’re afraid of losing them—keep going. That means you’re on the right track.
Remember, everything in the “don’t care” column is waste. You’re not freezing that money so much as burning it.
If you want to be a cash rich company, if you want to have the flexibility of being liquid, then you need to be brutal with waste. Only freeze the money that customers need you to freeze in order to give them what they care about.
Going forward, keep your findings in mind as you make new business purchases. Mentally place a purchase in the “care” or “don’t care” category before you pull out the credit card. Even if you still let a few “don’t care” purchases slide through (after all, you’re human), that extra filter can make the difference between staying cash liquid, or standing on thin ice.