Cash flow lessons from Ingram

It has been said that a budget is a mathematical confirmation of your suspicions. That may be the case,but it does not diminish the importance of efficient and concise cash flow management in the running of a successful business.

Last month (23 July) CRN revealed details of Ingram’s upcoming Reseller Business Program, to be run by external consultants, Quantify Corporation. Theprogram was designed as a six-module program for a small hand-picked group of resellers.

Up and running

The program is now well underway and CRN was again invited to gather an insight into the program’s fourth module, Managing Cash.

“Every session we get feedback and some of the comments we have received have been superb, such as ‘very relevant’,‘keep up the interaction’ and ‘excellent involvement’,” said Alex Lopez, a principal at Quantify Corporation.

Co-presenter and fellow principal at Quantify Corporation, Barry Freeman, said: “We are delighted with how the sessions are going. We have got some work to do in getting them to do the homework and we will be looking at that.”

Features of the program which have been working well include Quantify’s buddy system, where resellers have one- on-one time over the phone with Lopez and Freeman.

“Some of them are in direct competition, so we talk to them one to one, not in the classroom,” said Lopez.

Freeman added: “We call each Monday and talk abouthow the reseller is doing and if they have any questions.”

Previous sessions have covered areas such as marketing and the sales pipeline, but session four covered the imperative issue of the reason resellers operate, the money.

Money, money, money

“Cash flow is the lifeblood of the business, without it you can’t pay your people. No cash, no business. If you don’t understand cash flow, you don’t understand the business,” said Lopez.

“Both testing and reviewing of cash flow are imperative; if one of them fails the entire model could fall apart. We have all met the enthusiastic sales person who guarantees you the large sale will come in a specific month, only to find out late in the month that this will not happen. In our opinion very large sales should be taken out of cash flow projection as they could distort the entire model.”

Lopez also advised resellers not to run a service organisation with engineers and/or consultants without a Utilisation Report. The utilisation of resellers’ engineers and consultants are more important than the profi t they could generate for the company, he said.

The session started by asking the resellers to considerwhat a cash flow analysis is and explaining how it can be used as a ‘what if ’ analysis as well as an early warning tool.

Further explanation covered the importance of cash flow analysis to the business. “Without cash you don’t have a business, it’s that simple,” stressed Lopez.

“If a company has insuffi cient cash or access to funds, it will go out of business. A lack of understanding of cash position and forecasting ability probably means there is a lack of understanding of the business itself,” he said.

The session underlines the importance of making cash a key management focus and constantly making cash flow forecasts. “You need to have an idea of what sort of cash you have in the bank. The ins and outs. It all starts from
the sales pipeline and from there you can plan your cash
flow,” said Lopez.

The session goes on to provide details on how to prepare a cash fl ow analysis, the basic rules that apply to all businesses, understanding cutting price and margin, uncertainty analysis and sensitivity analysis.

True value

The session provides plenty of general business theory, but the true value of the program lie in two other areas.

The fi rst part is the “war stories” that Lopez and Freeman are able to draw upon to illustrate the importance of the issues they are discussing. With combined experience from vendor heavyweights such as IBM, Alcatel, Unisys
and Apple, Lopez and Freeman are well placed to add substance to any corporate concepts.

The second strength of the sessions is the reseller interaction. The group is kept down in terms of numbers, with representatives from six to seven resellers able to discuss common pain-points and issues they may have been having. These are thrown out to the group who can discuss previous situations and possible solutions.

What next?

“There are two more sessions, the next one is on leadership and motivation and the fi nal one is on communications,” added Freeman.

“We will be having ongoing relationships with the resellers and continue to feed them information. We are looking for consulting business from fi rms looking to use our skills. This program is putting ourselves in front
of them.”

Ingram is attempting to move this set of resellers on to the next level and those at the event seemed genuinely enthusiastic about the session and keen to learn and progress the running of their businesses.

Cash basics
Standard fixed and regular payments:
• Payroll
• PAYG
• BAS/GST/other taxes
• Rent
• Utilities
• Interest (some companies)

Variable payments:
• Suppliers
• Capital purchases

Dos and don’ts of cash control

DO:
Prepare a cash flow analysis with full input from the sales pipeline — without one you are going nowhere.

The cash flow analysis should include data from sales pipeline (what sales are coming and when), historical data from Accounts Receivable (what percentage of receivables come in 30, 60, 90 days), historical data from Accounts Payable (what agreements do you have with your suppliers ie 30, 60 and 90 days payment schedule) and what if scenarios on large sales, interest rates, foreign exchange rates, etc.

Testing and reviewing periodically the analysis with different scenarios
(optimistic, pessimistic, timing of cash in and out and probabilities).

Both testing and reviewing are imperative; if one of them fails the entire
model could fall apart.

DONT:

Assume anything when it comes to making a concise cash fl ow management plan. Test the model and the people giving you the advice. They could be wrong and you could be making vital decisions based upon incorrect information.

It is your duty as the business owner to be on top of the cash fl ow into and out of your organisation.

It is said that cash is the lifeblood of a business. If this is so (and it is) then it must be imperative for senior management to be constantly assessing that the "blood flow" is adequate to meet the needs of the business both now and as the company grows.

Indeed, it is growth that often causes a business to come unstuck due to the demands for cash that a growing business experiences.