Back June 29, 2016

Facing Change with Cash Flow Control

This blog post by Martin Zwilling on pivoting the business to kickstart growth, backed by the Brexit hassle as top news for the past few days was the inspiration for this article.

We are not thinking, of course, about pivoting ThinkOut towards a different kind of product or market (as we just got started), but we have to admit that we need to keep an open mind and be ready for change; us, as well as any other businesses, especially small ones. As Charles Darwin has put it: ”it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

As businesses are smaller scale human environments, we are safe to say this theory applies just as well. So, we all need to be prepared for change, face it and make the best out of it.

Where does cash flow come in?

Cash flow comes in long before change even happens. It is both an indicator that predicts the need to pivot at a certain point and a leverage when the business needs to adapt fast to new conditions. Change may come in the shape of customer preferences shift, developments in the economical (or even political) environment, technology evolving faster than anticipated, which converge in new opportunities or restrictions. Facing these, one must be prepared to adjust.

How do you prepare for change?

Whether it is planned or accidental, any change (business included) has the bad habit of messing things up, unless handled with care. Preparation is the key. Expect the unexpected and keep a “safety net” at hand.

We’ve talked before about forecasting. No forecast is 100% accurate, but a rigorous monitoring, doubled by an efficient tool to automate some of the operations (spreadsheets or cash flow software such as ThinkOut) increases the probability to get a pretty accurate view on the future of your business. This way the “unexpected” gets more predictable and you have an idea about what to do.

When the turning point becomes clear and you need to implement change, you still need a good handle on the cash flow. It will help with the decisions on future investments, revenue streams, negotiations with suppliers and clients, even internal deployment of the change process.

It is essential for the business, no matter which new directions it takes, to keep a healthy, positive cash flow. Therefore, change management principles can also be applied when it comes to adapting cash flow to new circumstances.

Who handles cash flow?

Even though cash flow management is naturally perceived as a top management task, when shifting to something new, this preoccupation needs to become even more obvious and act as a guideline for the entire team. The business owner and the manager take even more responsibility in controlling the cash flow, allocating cash resources and making sure that the operational cash flow stays positive.

But they are not the only ones who handle this task; it is important to involve every team member and create ownership. Controlling cash flow can be very well done by team members if working with a collaborative tool. This way each employee feels involved in the change process acknowledges the importance of cash flow and how they contribute as individuals. By creating awareness, the natural resistance to change decreases and the shift happens smoothly.

Keep communicating

You shouldn’t forget to always communicate about the change process to all stakeholders. It is one of the main conditions for any transition to succeed. This may require additional costs for certain materials, so you need to be sure you always have available cash. When prioritising expenses, managers often place communication at the bottom of the list; then, when they face difficulties with people embracing the change, they stay perplexed as if in front of a quantic equation. Keep communicating what you are changing, why and how; allocate resources to do that and make sure you have those resources by watching over the cash flow. Moreover, talk to your team about cash flow matters. You’ll be surprised at the engaging effect it has.

It is true that you can never be too prepared for the unexpected, but you should not ignore the “what if” and take measures while you can. Of course, no solution can be everything to everyone, but in this case, there are some simple steps that make a huge difference – such as cash flow control and forecasting.