The below an excerpt of an article that was first published in the JSE Quarterly Magazine on the 17th of May 2020.
It is critical, now more than ever, to understand your cash flows, says Stephen van Coller, CEO of EOH. ‘You need to understand your cash out and cash in. Every day, I receive a report stating how much cash the company has in every single bank account,’ he says. ‘We then put in a 13-week forecast and manage the business based on this.’ This does not happen overnight, he notes; it is a continuous process.
The next step is in understanding your customers. What do they need and want from you? Are you meeting your service-level agreements? Are they going to delay payment if you are not meeting these agreements? ‘Make sure you are on the right side of your customers because that’s your in-flows,’ he says. Based on these calculations and considerations, companies can start ‘right-sizing’ their operations. ‘It’s a process to fundamentally understand the cash flow of your business. Profit is irrelevant if you don’t have cash.'