Maximising Cash Flow for More Efficiency

At a high level, business is about the efficient conversion of capital into products or services that meet a need and then the conversion of those products or services back into capital (just a larger amount!).

All of this is not just for today, but also for sustainably into the future. The parable of the goose that lays the golden egg sums this up beautifully.

Breaking things down to an operating level, our goal of maximizing flow has three aspects to its achievement:

1. Generate the Maximum Return

When we look at how much cash is generated by the enterprise (not earnings, cash) and divide that by the cash tied up in assets and stock we receive a return on investment (ROI) percentage. We want to maximise this ROI percentage.

2. Maximise the Speed of Cash Flowing Into Your Business

Maximise the flow of cash by minimising the lead time from the purchase of raw materials and labour to the receipt of cash from the client. This is a key driver for the efficient utilization of cash and for improved customer service levels.

3. Maximise your business Viability.

All enterprise involves risk. Plan on how to manage the up and downsides of the scenario you are planning on. How can you still have a viable business if the worst case comes true?

Looking at your daily activities so as to maximise flow will result in improved customer service and greater commercial returns. Your costs reduce as the waste (which usually blocks flow) starts to disappear.

Comments are welcome!

Have and awesome day!


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