“More companies die from indigestion than starvation”- Andy Grove
One of the last things an entrepreneurial CEO wants to get involved with is the cash flows of the business, but it could be a deadly constraint. While Grove was likely referring to collapse of company culture or otherwise, the truth is, there’s many factors that lead to companies failing that are fast growing.
If cash is like oxygen for a business, it is one of the most important things for the CEO to keep their eyes on. That’s why having a dashboard to check weekly or even daily makes it really easy for a CEO to see a handful of critical numbers to make sure that the ship is headed in the right direction. Cash balance is one of those numbers to watch. How often is your cash balance reported? The best practice is to have it reported on daily.
The next is the length of the Operating Cash Cycle. Stated simply, it’s the amount of time it takes to get every dollar back spent to get a customer. From a marketing or ad campaign through the final collection on accounts receivable. For most services firms or companies that get paid immediately upon delivery, the Operating Cash Cycle isn’t a huge concern. But for all other organizations, it’s mission critical. It is imperative to track your company’s Operating Cash Cycle but also find ways to improve it.
Each dollar invested to grow will help identify the Self Financeable Growth rate. For example; your firm may be able to 17% annually without having issues with cash. But anything faster than that will create a break down in cash flow.
For more information read the article: How Fast Can Your Company Afford to Grow? by Neil C. Churchill and John W. Mullins at HBR.