Most business failures result from a shortage of cash. To patch the cash holes, we run to the banks for higher overdrafts, factor our debtors, raise trade finance, enter buy and leaseback arrangements … or make any one of several other inventive financial arrangements. It is tragic that not enough attention is paid to identifying all the hiding places money creeps into, and once bedded down, pretends to be dead.
Mention dead money to anyone and they immediately think of the inventories of the business, more commonly referred to as ‘stock’ (the accounting definition refers to the quantity and value of raw materials, work in progress and finished goods on hand at any point in time). This is a very narrow, and blinkered, interpretation. Exercise some lateral thinking and you will begin to see that the business is littered with money lying around and just waiting to be harvested.
Before we identify the less obvious hiding places, let’s take a quick look at the two historic favourites:
- Stock: No matter which way you look at it, stock represents money tied up. This money is only released once the stock is sold. The lower your stock levels are, the higher the stock turn rate will be and the more efficient you will be at managing your cash resources. Minimising stock holding will also result in lower holding costs, which include inter alia, insurance, space, shrinkage, spoilage, dating, interest, and the full value of the opportunity cost of being able to put the cash tied up to productive use elsewhere. The reverse side of the coin is not holding enough stock, thereby losing sales. Balance the stock holding equation carefully!
- Debtors: Until the money is in the bank there has effectively been no sale. We are far too quick to grant credit facilities to customers and far too slow to calculate the exact cost of carrying a debtor’s book. ‘Borrowing’ your money is the cheapest form of finance available to your customer and he will naturally string you out for as long as possible. Make the money expensive to him by offering settlement rather than trade or volume discounts. Nobody ever said settlement discounts can’t vary from customer to customer. Provided your settlement discounts are lower than the debtors book carrying cost you have a safe bet. Getting your money out of your customer’s bank account and into your own is an art – become good at it!
Having cleared the air with the conventional let’s take you on a journey of lateral thought (in the interests of safety, will all accountants reading this letter please don their protective headgear as we can accept no liability for corrupting your though patterns):
- Unutilised or Underutilised Assets: Few businesses fully utilise their assets. Form an alliance with some other business, one which is not a direct competitor, to take up spare capacity on your equipment. You will be surprised how much demand there is for these arrangements if you earnestly look for takers.
- Staff Time: A big one! If your staff are spending too much time in meetings, on smoke breaks, chatting, absent on ‘sick’ leave, ‘entertaining’ customers, ambling around, and so many other time-wasting endeavours … you have too much staff! Reduce your staff levels and increase the workload of remaining staff. Identify key staff and keep them on the payroll – outsource non-critical activities. Turn the money you spend on the living dead into living money!
- Operational Efficiencies: Too many people live in a dream world, believing that their operations are highly efficient and that nothing can be done to improve efficiencies. Cold examination of processes and procedures will yield a host of inefficiencies and unnecessary activities. This is never a one-time exercise, but an on-going process.
- Unexploited Opportunities: Every time you come across an opportunity, thought it attractive, and done nothing to exploit it, you have truly buried the money it could have brought you! Only discard an opportunity once you have examined it and found it to be flawed. At the very least keep it in the ‘opportunities parking lot’ so that you do not lose it.
- Customer Queries: A fortune lies tied up in customer complaints and queries. We spend a lot of money in having people handle these queries but miss the boat when it comes to examining these complaints and queries to find ways to turn them into revenue-generating or cost-saving reality. Ever heard the term ‘dead man walking’? This is called ‘dead money walking’!
- Customer Leads: Do you or your people really follow up every customer lead that comes your way? I think not! Every lead not followed up is money thrown out of the window.
- Intelligence: Every Army and Government in the world have formal intelligence gathering agencies yet few businesses see the need. Knowing the moves being made by your customers, suppliers, staff, the unions, the markets, competitors, and technology is worth a lot of money when you are able to interpret the intelligence and translate it into money-generating opportunities.
- Marketing Initiatives: All too often we identify initiatives we can take to extend our marketing activities towards profitable gain yet fail to explore and exploit these because we do not follow through on them. Is procrastination not perhaps the undertaker here?
- Idle Cash: The greatest sin of all is to have suitcases full of hard currency (yes, there are many businesses which do) and not mining advantage (earning a return) on this cash. A little bit of lateral thought and advice from seasoned campaigners will result in high returns!
- ‘Investments’ in non-productive assets: Unless your image earns you money, or you have enough money to splash out on ‘assets’ which do not earn you a direct return, can you really afford the luxury of tying money up by spending on bleeding edge technology, fancy buildings, the best furniture money can buy, company cars for all (including the office cleaner), and so on? An asset is an asset only if it earns you money, either in the form of a capital gain or in the form of annuity income. If the money tied up in these ‘assets’ merely appeases your ego, it is dead money!
- Unutilised Space: Office and factory accommodation is valued at so much per square metre. Unless unutilised space can be justified, and a monetary value attached to the benefit it brings, you have created the most ideal wilderness in which money hides. Do what you have to do to realise monetary value for any space you may have which is excess to your requirements.
- Self-Improvement: People spend fortunes on educating themselves. They obtain some qualification for the money they spend and then expect someone to pay them a fortune for the knowledge they have. Knowledge of itself is worth nothing … it is the productive application of the knowledge that is worth something! Your most valuable asset is your knowledge – by putting it to the most productive use you can find for it you release all that money you have locked up in your head!
We could go on forever, but the point has, hopefully, been made! Money is lying around every business on this earth. First you must identify where it has buried itself, then you must lay plans to uncover it and bring it to the surface. Always be on the lookout for that hidden cash and ferret it out of hiding immediately because you never know when you might need it.
Remember that internal misjudgements are six times more likely to cause business failure than external factors. The message is clear … keep objective help close at hand at all times, and if you don’t have it, get it without delay.
QUOTATION:
No accurate thinker will judge another person by that which the other person’s enemies say about him.