Who has enough cash flow? No one. Who needs more cash flow? Everyone!
This is nothing new. Though, how we get more cash flow in 2025 is certainly new. Next year, in addition to the normal quantitative features, strategies and approaches, qualitative features are going to be equally — if not more — important in achieving cash flow success.
Combining the quantitative and qualitative factors that drive cash flow, and reengaging and re-engineering our work force, will be the ultimate keys to success in 2025. It is going to take more effort and leadership than ever — a guiding hand, patience and empathy. Remember the words of the late great hall of fame musician Tom Petty: “I won’t back down.”
Quantitative Focus and Granularity Are Key
For any company, generating cash flow success revolves around building a plan, executing the strategy, monitoring performance and pivoting during implementation and execution.
Preparing and utilizing a detailed rolling cash flow forecast and utilizing a granular, line items budget to actual variance tends to hold people accountable, which is more important than ever. The cash flow forecast also includes consistently rolling it forward, tracking trends, improving purchasing habits, shipping on time and increasing efficiency and effectiveness.
Forget pointing fingers and blaming others. Focusing on generating cash and maximizing returns not only makes people better managers, but ultimately improves the organization’s bottom line.
More Gross Margin, More Cash Flow
One of the cores of great cash flow is gross margin excellence. Are the items listed below included as part of your strategy and approach? Are they reviewed each month when you produce your financial statements? If not, they should be included monthly in a report detailing key performance indicators:
- Optimize throughput
- Rationalize overtime
- Reduce waste
- Increase accountability
- Assess key supplier pricing and terms: Are you receiving what you deserve?
- Provide a “bonus pool” to your team for excellence beyond milestones
- Enhance inventory turnover
- Improve AR aging
- Block and tackle to keep your eyes on the prize
- Determine where you have the most influence
There is no reason that implementing and executing these 10 attributes, as well as others, can’t increase your gross margin by 2% to 3% per annum.
Is Your Lender Partnership All That It Can Be?
If your company is borrower, are you getting the most out of your lender relationships? Are you treating them as a partner and vice versa? Are you treated as a preferred partner? These questions certainly adjust as your company’s performance does. Your lender makes more when they loan you more, so they are incentivized to do so.
By now, lender and borrower meetings should have occurred or at least be scheduled for 2025. These meetings should focus on what is on the horizon for 2025 — both opportunities and potential threats. These meetings pose an opportunity for borrowers to outline their position, program, goals for 2025, execution plan and their “ask” from lenders. Is there something your lender can do to make your position in the marketplace stronger? Certainly, this offers an opportunity for both parties.
If you are performing well, there is no better time to ask for more capital than when you don’t seem to need it. If you are in a transition period, encountered a hiccup in 2024 or are in a turnaround or restructuring phase, the plan details you provide can make the difference needed to get back on track. There is no harm in asking. The worst somebody can do is say “no,” which leaves you no worse off than before.
With this in mind, however, remember to convey to your lender:
- How much do you need?
- For how long is it needed?
- What rate and fees can you afford to pay?
- When will the loan be paid back?
- What is the business plan to answer the aforementioned questions?
I was once told: when you have a meeting with the IRS, if you don’t have a method of payment with you, it means you’re not serious. Being able to answer these questions shows your request is serious!
Qualitative Factors Drive Change
When was the last time your company reassessed its website and social media presence, such as their functionality, ability to drive customers to take action, number of click-throughs and so forth? Does your website have the “wow” factor? How often is your company posting?
A company should strive to make its website a go-to place for its audience, stakeholders, customers and others. They should be taken seriously. An important, and fascinating, exercise is evaluating how much web content and aesthetics is just enough, without crossing the line of “too much.” It’s the cliché: just enough generates positive results and impact but too much will have the complete opposite effect.
When was the last time you asked your customers what they thought of your company, its leadership and so on? Do your key vendors think of you as an important partner? Again, if you don’t ask, you’ll never know. Yet, once you do ask, you might be amazed by what you discover — both positive and negative, or room for enhancement.
Technology is another vital factor, especially today — and not just cybersecurity, though this is one of the first things companies consider. What are your thoughts about a technology program (macro), along with a cybersecurity plan (micro)? Companies that were most successful during the COVID-19 pandemic were able to effectively manage the transition from an office to a remote environment. Are you prepared for the next round of AI? If not, it’s worth checking in for 2025; it will set your organization apart in the best of ways.
Another program for consideration centers on marketing and business development. These are clearly different business silos. The approach, vision and path taken for both segments will likely be a correlation for your organization’s success. The best organizations revisit this on a quarterly or even monthly basis. Make subtle changes as the market and the business evolve. The best companies are proactive and utilize these plans as part of their ongoing performance and operations rather than a once-a-year, ‘check-the-box’ process.
Culture Shock and Your Company’s Approach
Empathy, humility and self-awareness are more important than they have been in recent history. Unfortunately, people and companies often “talk the talk” but don’t “walk the walk.” At times, the commentary appears a bit hollow. Ideally, most people in leadership positions realize that most people can identify the crucial difference between words and actions. As such, it is critical for a company to develop a culture of success and transparency.
People generally don’t care how much you know, until you show them how much you care. Those with great humility don’t have to prove how smart they are. Their approach, comportment and thoughtfulness are omni present. We all know who the “icons” of their peer group are, versus those who “just” belong there.
So, as we look to 2025, are your team leaders those who lead by example and are respected in the marketplace? Ask some of your stakeholders and clients who can provide you with unbiased and thoughtful input and insight. Are they delivering on their promise, results and excellence? Transparency is a new catch phrase. Window dressing will have a significantly negative impact.
Sudden and Second Thoughts
2025 should be filled with opportunities. The market for private credit continues to expand rapidly, and there should be more deals to fill the pipeline. The private equity sector is raising money at record levels. There are opportunities for failed deals, turnarounds, restructurings, quality of earnings, healthy and distressed sales and so on. By considering the aforementioned points with an open mind, thoughtful approach and steadfast execution, your company and its stakeholders will be well-positioned for success. •
Robert D. Katz, CTP, CPA, MBA, is a managing director of Eisner Advisory Group, Financial Advisory Services practice, and an expert in lender relations and increasing cash flow. He is one of the founders of TMA’s most successful conferences: The Distressed Investing Conference. Katz is a member of SFNet’s Education Foundation and is an adjunct professor in Strategic Management and Corporate Finance at Temple University. Contact him at [email protected] or 215-738-5542 for additional insight.
