Cash Flow Improvements

At Lakelet, we believe in the famous expression "cash is king" because the ultimate success measurement is the amount of cash generated. When looking at lower-middle market companies, measuring cash is paramount. 

The key processes / metrics Lakelet Advisory Group recommends are: 

  • Fully understanding your break even from a cash flow perspective. This includes: expenditures, revenues, timing, debt service, seasonality, etc.;
  • Often times, too much focus by entrepreneurs is on the profit and loss statement. The key to successful cash flow is optimizing the balance sheet. The balance sheet is more complex, but it more accurately reflects the overall health of a company. For example, the balances themselves are key, but it is the timing that plays a significant role. How quick are the inventory turns, turnover of account receivables, etc.;            
  • Lease, Don't Buy;
  • Enforce Payment Discipline. Do not set a precedent of allowing your money to be abused; 
  • Require a down payment on projects so that your customers fund the project, not you; 
  • You may even have to "fire" a few non-value added customers / clients; 
  • Evaluate Your Terms. Can you get paid in 15 days - not 30 days. Can you pay in 45 days - not 30 days;
  • Pay commissions and bonuses on cash collected vs. revenue earned; and 
  • As Benjamin Franklin has stated, "a penny saved is a penny earned". Be creative in expenditures - not cheap. 

Lakelet Advisory Group has noted that the lack of understanding of cash flow vs. profitability is a major challenge for the lower-middle market entities. When your financial projections are created on an annual basis, it is important to generate a company balance sheet statement with the projections. If you fail to generate financial projections - always remember "failure to plan is a plan to fail".

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