The Cash Flow Blog

The first report is in — Utah’s experiment with a 4-day workweek appears to be a success.  In the first year of the program, the state reduced it’s operating expense by $4.1M.  That may not seem like a lot to some, but it’s significant as a result and begs the question of how much greater a return it can net?

Savings were found where you’d expect — for example, energy and janitorial. The surprise came in the reduction of overtime.  Preliminary conclusions are working four 10-hour days reduced the need for overtime by allowing more work to be produced in a given day.  Interesting.

Employee moral was reported up as well.    Although the article didn’t mention it, I’d be curious to see what affect there has been on sick-days — Do people who work four 10-hour days a week take less sick time than employees who work five 8-hour days?

Regardless, changing your work schedule should be considered as a way to smartly reduce cost.

What do you think?

In case this post is read years from now, let the record reflect times are tough for a great number of businesses and businesspeople — I’m writing this is October 2009.

The date of this post has nothing to do with the information that follows.

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I’ve maneuvered through a number of layoffs.  In fact, I’ve not only closed many offices on behalf of a company and personally delivered the layoff message one-on-one to dozens of employees, I’ve actually laid myself off.  But that’s another story.

I’ve seen a number of businesses struggle to survive.

Over the last year or two, countless people have lost their jobs. Some soon after lost their homes.  Both are terrible losses.  Life changing.

And the more you cut, the more you put those left behind at risk.  It happens more than it’s talked about.   It’s death by a thousand cuts.

What happens is a business reduces expenses in an attempt to survive.  The expense cut is staff.  Things look good for a while, then not so good.  And another staff reduction is exercised, and so on.

There is a limit whereby cutting expenses doesn’t work.  The point of no return is when operational capacity is pierced.  At that point, the cuts you make to staff limit your ability to produce, deliver, and support in your market.  Revenue falls.  And expenses need to be cut again.

Yes, this is over simplified.  But it’s true nonetheless.

The point is in an attempt to manage a cash flow problem and faced with a staff reduction, be sure you understand what’s being cut and the result.  Be sure to review and revise revenue forecasts, as well as your ability to produce and support the products and services you offer.  Then cut deep enough the first time to get ahead of the problem.

Don’t let your business slowly die one cut after another.

What say you?

Economist.com on the opportunity for those businesses with cash on hand:  For the few lucky hoarders, this is a time to feel both smug and predatory.

But your business having cash on hand may not be enough:  …ultra-lean supply chains no longer look like such a brilliant idea when you have to find cash to keep afloat a supplier that cannot get even basic trade credit. “Just in time” is giving way to “just in case”. ~ via Economist.com

The bottom-line is cash flow challenges can extend well beyond your corporate doors.  Your ecosystem of business has to be healthy, as well your home.

Talk to your business partners and customers about their current business environment and experiences working with their customers and suppliers.  Become more aware and in-tune with trends your ecosystem is experiencing and be prepared to move quickly should a partner or customer not be able to weather the current economic storm.

What do you think?  How close should you monitor your business ecosystem for financial health and survivability?

There are times when your business needs money and it’s simply not possible to get it via conventional means – an option you might not have considered is selling shares in your company to a customer or group of customers.  BusinessWeek | Small Business Financing has a post on the opportunity, key considerations and potential pitfalls of such private placements.

A private placement is a streamlined way to raise capital from a group of investors, whether individuals or companies.

I take issue with the first noted benefit – branding – but private placements certainly lead to increased loyalty and understanding from those who invest.

A potential pitfall overlooked is competition in B2B environments – will your agreement to sell shares in your company restrict your market opportunities as they apply to companies your new investor considers competition.

Private placements shouldn’t be looked at as a cash flow strategy, but for those of you in need of capital and find it out of reach, private placements are something you should consider.

I have a small collection of cash flow books, many I’ve been sent over the past couple years to read, review, and comment on.  A couple are written by people you may be familiar with, but the majority are unknown sources – at least previously unknown to me.

Flipping through one book in particular the past couple days it struck me how much bad advice the author was extending to the reader.  The title of the book and author aren’t important, I’m not interested in calling-out a person over what I believe is bad advice.

And it’s not the point of this post.

The point I’d like to make – and thought I’d like to share – is be cautious of the advice you take and act upon.  Especially in tough economic times and uncertainty, the temptation to jump on guidance from an authority can be great.  Most especially when facing a cash flow problem and feelings of pending doom.

Be sure to weigh all advice you get and make sure you think through the consequences of taking a recommended action.  What may be great advice for one business can have devastating consequences for another.

For example: What prompted me to write this post is the advice in the aforementioned book to change the compensation plan of all sales people to commission-only – eliminating salary and in many cases benefits.  The author’s rationale is saving money and changing a huge chunk of sales expense to a pay for performance plan whereby revenue offsets payroll.  My problem with this advice is it’s never qualified by market, circumstance, complexity of offering, etc.  And the advice is never balanced with potential consequences of making such a change – turnover, customer impact, account management, quality of employee, hiring challenges, acts of desperation in the sale force, etc.

My point in this post isn’t to challenge advice to change your sales team’s compensation plan. That’s a conversation for another day.

What I want you to take away from this post is awareness hard times can create an incredible sense of urgency to change and take immediate action.  When faced with such urgency, be sure you think through all of your options and evaluate the possible and probable consequences of the action you take.

With all advice and opinion, we all need to weigh it carefully and make as informed a decision as humanly possible.

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Update #1:  Here is a link to a post on why changing sales compensation plans to meet a cash flow challenge isn’t a good idea for most businesses.

Update #2:  Here is great realted advice from Seth Godin on resisting the tempation to jump on get rich quick offers in bad times:  If someone offers to sell you the secret system, don’t buy it. If you need to invest in a system before you use it, walk away. If you are promised big returns with no risk and little effort, you know the person is lying to you. Every time.