Webinar Recap: Where is My Money & How to Use it to Grow My Business
Scaling Up Coach Jonathan Mond led a presentation outlining the simple yet necessary steps to turn your financials into a scalable business strategy.
Jonathan employs the Power of One methodology which upholds the principle that even the slightest changes to certain economic drivers can have a significant impact in moving your business forward.
Starting with the basics, business leaders need to understand the 7 drivers of cash and profit:
Price
Volume
Cost of Goods Sold
Overheads
Receivable Days
Inventory/WIP Days
Payable Days
Understanding these drivers and their impact on cash flow is critical to sustaining business health, and the Power of One is a way that leaders can break it down simply.
For example, using the Power of One can help you identify whether increasing price or volume, or decreasing the cost of goods sold or overheads by just 1% will have a significant impact on your cash, profitability, and valuation. Similarly, it can show a company how adjusting the number of days for accounts receivable, inventory or accounts payable by just 1 day can improve your cash flow sustainability. This is why the drivers above are the most telling factors of your financial success, and understanding how to influence them to any extent possible is crucial.
According to Jonathan, it’s also critical for successful business leaders to know how to conduct a proper health check. Leaders must always be aware of metrics like revenue, gross margin, operating profit %, revenue growth vs. cost of goods growth, revenue growth vs overheads, etc… and understand how to track them properly.
Another important part of a business health check is working capital. Working capital helps you identify patterns and understand where your cash is and how it can be used to drive sustainability.
Working capital = (Accounts Receivable + Inventory) – Accounts Payable
Ultimately, identifying how the seven drivers can impact your business should then lead each company to the creation of its strategic priorities and the action items needed to make that happen.
