Managing A Positive Cash Flow with Peter Kingma

Are you thinking about how to grow your business with near and offshore staffing, but you're also wanting to make sure that it's reliable, cost effective and really well done. I think docsa talent is the way to go. Here's why. They don't just fill your jobs. They bring integrity, top talent and a people first approach that's hard to find. I've known the people at Doxa talent for over 20 years now and I say that you can count on them. I have talent to doxatant and you won't be disappointed. Go to doxatant.com Bill G Again, that's doxatant.com BillG One more time. Doxatalent.com Bill G Check it out today. You've heard it before but Cash is king. Cash is king. You've heard it before. He wrote the book on it. How do we get cash up in the business? God, I can't tell you how many nights over the years across different companies I worried about cash. The 3am cold sweats as you thought about paying a vendor, making payroll or that kind of thing. That's the subject of our conversation today. How do we get it right and keep it right? Business is always hard, but it is possible to have fun with the growth journey. It's possible to lean into these challenges that we all face in deal with on the regular. And that is the subject of our show. My name is Bill Gallagher, scaling coach and host of this Scaling Up Business podcast. Our show comes to you every week with an author, a guru, expert, a CEO, somebody who's talking about how do you grow your company. And we got things to share about both successes and failures. And I've got some very painful multi million dollar mistakes in the world of cash that I'll share as we talk today. But um, you'll find all of our shows on everything to do with the world of Cash, with the world of growing your business@scalingcoach.com We've also got a monthly workshop there to help you to look at your mindset around a particular challenge area and which tools to apply to get scaling up and get things going. We've got free tools and downloads, courses and things like that and newsletter you can subscribe to as well. So scalycoach.com is our website where to find all that and more. All right, listen, I want to welcome now the practice manager for Ernst and Young, the EY Working Capital Group in the Americas. Also now an author of a book called Cash is King, Peter Kingma. Welcome to Show, Peter.

Thanks, Bill. Good to be here.

Yeah, really glad to have you here. You know, it's funny. I. I sweated cash in every single business in every category of time. And I see my clients sweat cash on the regular. But when we get it right, when we dial it, when we get the business more self funding, when we figure out where the leaks are in our bucket, like, things get a lot better. We breathe better, we sleep better. We make more sound decisions around things. When we have the cash in the business.

Oh, absolutely. You know, it's crazy. Cause I think a lot of people don't fully understand what drives cash in the business. Right. So in many cases, I think we've drummed in the importance obviously of revenue and of containing cost. And most organizations, each individual kind of understands what their role is in both of those. But there are countless decisions being made every day. And particularly if you talk bigger, as it magnifies to bigger organizations, thousands of decisions being made every day that can positively or negatively influence cash. And most people don't know it. I kind of go back in my professional career when I first started out, out of college. I call those my tuna fish and green bean days, because I had paycheck to paycheck. I had to make rent payments, car payments, et cetera. I'd come down to the last few days before my next paycheck, and all I could afford was eating like a common house cat. Tuna fish and green beans. That was such a powerful lesson in cash flow. And it's all about timing. It's all about getting the receipts to come in in parallel with when the disbursements have to go out. Somehow in households, we kind of get it and then we go and we get into business and we sort of forget some of those fundamental principles and get ourselves into binds, particularly around the timing of the cash flow.

Yes. Well, we're getting. Let's actually hold that for a second because I can remember my CFO once telling me, oh, look at this. You had the most profitable year ever as a business. I'm like, fantastic. She's like, I need another half a million dollars the next two weeks. Wait a minute. I thought we had profit. She's like, yeah, no, it's in the warehouse. You have an inventory problem right now. And that was the least expensive of the challenges. Talk to me about. So you learn some personal lessons about cash and timing as you eat modestly as a young person. But how do you come to write this book? What is the life path that led you to this?

Well, this is the work I've been doing for the past 20 years plus. And I work with wide variety of companies.

So you're getting good at it now.

Some are big, some are small, some are repeat clients. I guess it was that observation over the years that this is a seemingly simple topic. Collect faster, pay slower, and don't hold as much inventory. That somehow still, that seemingly simple concept trips an awful lot of people up. That's where I set out to write this book. I have to tell you, the book is not a textbook. There are no graphs, there are no complicated calculations. I created a fictitious company actually. And so every chapter is about the officers kind of solving the problems like you're talking about. In fact, the opening one is the CFO is telling the CEO that he's. That he thinks he's running a business making motors, but he's actually running a bank. And a bank that doesn't charge interest, no less waking up in volume. Yeah, he's loaning money out to their customers because the customers are paying slower. And that's sort of the wake up call. Back to your point is, you know, they need the cash to stave off tough times, to invest back in the business, to take advantage of market opportunities. We explore that through the story is how does that all work then getting into the specifics then of what do each individual player in the business, how do they contribute to that either negatively or positively.

It sounds a little lencioni like that you've written a little bit of a cash parable, is that right?

Yeah, yeah, yeah. I wanted something that, you know, I would want to read and that my family would want to read. And you know, and I've been told many times I can bring a dinner party to a halt if I talk about what I do at work. So I wanted to find a way to make it, you know, more engaging and really again, to get this sort of critical concept of managing cash flow where everyone can kind of understand, all right, here's what we've got to do about it.

You know, it's funny, I had spent most of my career working in services companies in either tech or media services. And when I went into an inventory based business and I took over as CEO, that was quite a rude awakening. And it's funny because I felt like I really understood profit and cash and that kind of thing. But when I had that profitable year and I was really short of cash, it was huge wake up call. And I'm like, wait a minute, wait a minute. So I can have profit, but I can have too much inventory tied up. And that was a whole problem. But we see cash issues even with our services based companies, especially companies that do project work, whether it's construction or app development or whatever. And their timing of things is wrong. And so they're paying all their people out every two weeks or whatever, sometimes more often. And then they're getting paid 180 days later after they deliver some big project. I'm like, so you just floated $750,000 to that client.

You were their bank construction is famously Rob Peter to pay Paul kind of business. And it's very vital. And I think about. So if you think about chasing sales and we incent sales teams to go out and you know, get the best deal, get the best sale and then oftentimes what happens at the end of that conversation is then we get down to what the commercial terms are. So how much, you know, how quickly are you going to pay me or how many, what's the service level I've got to guarantee you for the material I'm going to send to you? And that's honestly often not baked into the conversation early enough to be able to come up with sort of the economic rationale for why you made that decision. And, and if, and if you kind of cascade that out now, then, you know, salespeople often also earn commissions not on what is collected, but what is billed. And so now I have no, you know, as a salesperson I'm not going to go, you know, sort of fight the extra fight to get a more favorable commercial term. Nor am I going to get really involved in calling the customer up if they're slow in paying. And that stuff just cascades and it becomes a real out of sync problem and you end up eating tuna fish.

And some of those salespeople will discount the service or product until you're actually not making any money on anything. So you're not making money and you aren't collecting it and the salesperson can still make a commission. If you could tie to collected margin, then you'd be in a different game with your salespeople.

That's right. And that's how you end up becoming a bank and you're a bank to your customers. And the same is true on the flip for your suppliers. I see procurement folks and people buying materials trying to chase the lowest cost, maybe sourcing from Asia, but that is going to increase the lead time requirements or may increase the minimum order quantities you've got to buy. Now suddenly I've got maybe a few cents cheaper on the material. I did some work with an apparel company and it was interesting. They were sourcing, they were sourcing everything from Asia. And as we did the calculations, it's actually more affordable for them to take a higher price per unit to source from Mexico, where it was quicker to market. And they could chase trends faster than trying to put everything on a boat from Vietnam or China and take that extra time again. It's helping those in the organization understand those decisions that they're making and how it affects the balance sheet.

It's interesting. There are company differences, there are country differences. When I shifted production from China and Indonesia to Thailand and India, I got great terms. I went from having to deposit things or do letters of credit to getting paid after terms, anywhere from 30 to 180 day terms. One supplier gave me a $5 million line of credit just to start to move things to them. They were being opportunistic and they had some funding to support their business and the others had practices and they weren't comfortable with it. So guess where all my production moved to in those times? I moved everywhere I could get terms.

That's right. You want to use your, to your point, you want to use your balance sheet to its most productive means. Every dollar that every dollar of cash has the same value, but not every dollar of cash deployed has the same return. And so if I've got all that, let's say I have a bunch of inventory that's slow moving, it's the same cost as the stuff that moves fast, or I have customers to your point, maybe that I want to invest in, maybe I'm going to extend them very favorable terms and use my balance sheet to support that so I can win that business. But I want to do that selectively. I want to do that with the customers or the deals that make sense. And so you got to have the insight to be able to make those decisions.

So let's tell some stories. You've got some great stories that we shared in preparation. So talk first about the denim company and what happened there.

Yeah. Had this conversation with the CFO of an apparel company and he was saying, I've got 30 years of denim on hand. I don't really think he probably had 30 years, but the dynamics were they are, are in a market trying to chase in particular team trends. So you can imagine how incredibly fickle that is. But they were also trying to source from low cost countries as well. And so they had, and in this particular case, they had young merchants who were well intentioned at chasing the Trends, but making these decisions with very long ramifications and so way over ordering everything and not trusting forecasts and chasing cheaper markets because they thought that's what they should do. And so they just end up then after a couple of years leasing more and more warehouses, frankly, to store all this denim, this material. What we did is we had to start from the basics. What are our forecasts? And it's okay sometimes to sell through those forecasts. Right. And not to chase. We're going to chase the trend as far as we can chase.

Yeah, be out like, yeah, miss a.

Little bit, miss a little bit every once in a while because maybe that's the right thing to do. We also looked at everything like replenishment strategies among stores. So it's not all coming from a central DC and then like I said, sourcing through, you know, countries that are closer in markets, we can get a faster churn. But you know, it really took, you know, it kind of takes the finance lead sometimes to bring this awareness of operational issues. It really took the CFO to say, hey listen, we need the capital because we're trying to expand. They were trying to launch new brands, we need the capital to expand. Yet it's tied up in all this slow moving inventory that's not going anywhere in a recognition that the merchants and the individuals that are making these decisions just really didn't have the tools or the insight to make, you know, make the sort of the proper trade off decisions.

You know, it's interesting that you say that educating from finance to other business management. And I was coaching a public services company, tech services business some years ago and the company was public and you know, they had they that gave them some liquidity and that kind of thing. But they had a business model that was problematic. All the people around the company patted themselves on the back for their profitability, which was fine and good. But only the CFO really understood that the way that they were selling was working them out of cash at a very rapid rate and that selling more was going to make the problem worse, that they needed to change the way they sold and fulfilled and invoiced. There was some fundamental business model changes that needed to take place because they couldn't just borrow more money. That's a real interesting thing. If the relationship is broken or flawed in some way between the CFO and someone who understands that and the rest of the management team and that message not getting across, people will pat themselves on the back while they sell you out of business because if you run out of cash it's you, you don't, you, you don't pass, you don't advance.

You know, it's so true. In the book I describe that is, is the importance of having a cash culture. A culture that fully understands the impact of the decisions, that fully appreciates the value of capital. I mean, I had a, I had, it's kind of embarrassing to say, but I had some senior level executives of a, of a pretty well known company tell me that we're swimming in cash. We don't have a cash problem. You look at the debt that they had and the cost of the debt service, it's like, yeah, you may be churning over a good, your free cash flow is decent now, but look at the long term effects and what you could be doing better with that cash and deploy if you had more, deploy it to paying down that debt. So it's that cash culture really, you know, sort of helping. Let me give you another example, Bill, that this was, this was crazy. A senior finance exec of an insurance company was telling me that, you know, he doesn't think that many of his peers really understand how they make money. You know, insurance, the only way they make money is by investing the cash, right? So you want to collect the, you want to collect the cash, invest it and then hopefully you make some money before you have to pay off, you know, the claims. And he said, you know, we had these just crazy problems with either claims being paid too slowly and incurring penalties or prepaying claims ahead of the time. And it's just, it was a sort of a lazy atmosphere of not fully understanding that fundamentally an insurance company, all they do, all the only reason they exist is to take that cash and to invest it. And you know, senior executives not fully understanding that. So, so it's not a surprise that you get into manufacturing or other businesses that, you know, have been so focused on sales or product development. And don't get me wrong, they're very important. Those are critically important.

Well, as a California homeowner, as a California homeowner, many of us feel like the way the insurance companies are making money is by collecting fees forever and not wanting to pay.

Fair enough, fair enough. But, yeah, but it's getting, I think this understanding of the importance of using, making decisions that are also based on cash flow is critical. And as you point out, you can be a profitable company and go bankrupt. Look at the example of Chrysler, great iconic company that just could not weather the storms of the 1980s and had to go seek a bailout at the time they were one of the top 10 largest revenue producers in the country. The history is full of examples of organizations that generate a lot of revenue but that also struggle because of the cash flow issues.

It's interesting, you mentioned companies like Chrysler. You mentioned companies like a large denim company you make. We think about these kinds of big companies and surely they have people and they're smart and they don't make the same mistakes that the rest of us make. But I think we see whether you're large or small, this is a continual challenge always to understand the business and to have other management understand cash versus profit versus sales as a key component and a major differentiator between. Just so much of us are trained around company value and thinking about ebitda, but not about how do we stay in business and manage cash. But if you're really smart with cash, then you can fund growth. If you're really smart with crash, then you have time to keep working on improving profitability, but you can't do one and not the other.

Yeah. And you know, we saw great examples like what happened during the pandemic. Right. Suddenly we all became experts at supply chain issues. Right. When we couldn't go out and get toilet paper, where am I going to get it?

Right.

Yeah, but that supply chain shock caught a lot of companies off guard. Right. And so they, they needed capital to quickly go out and find material and, and to, you know, and pay extra transportation costs and everything else that associated with trying to. Right. Size that and those. You know, the one thing certain about business is it's going to be uncertain. Right. And there's going to be shocks, there's going to be times that are going to keep throwing you curveballs and you got to have enough cash on hand and capital and access to cash and capital to be able to weather those storms or to take advantage when your competitor is down. Great opportunity to pounce if you've got the capital to be able to go in and invest and expand. You're right. It can't just be. I mentioned that the CFO or finance exec can be a prodder in this conversation, but it can't be viewed as just the treasurer or the CFO or the finance execs that this is their domain because all those decisions are being made by operations.

Think about so many examples. I know you've got a couple more. But I think about the time when I made a mistake around some production and I bought years of goods I didn't need and that cost me about $2 million. That isn't in my retirement money today that would be nice to have in my retirement money to an individual. That's a noticeable amount.

That's right. Ye.

And it really was about change in people, change in systems, time of change in sales, different products and buying things that we shouldn't have bought and lack of oversight and lack of control. And that really cost me. And also at a time when raw materials were skyrocketing and you think about it like if you could pay attention to and think about the cash as well as the profitability of the whole thing because like, oh, of, you know, we probably still own some of those goods in that company some years later, right? Ten, ten years later, those are still being sold off. I think I actually need to go check that I should quote that. Right. But the noticeable kind of pain point that happens. And I had a coach or a mentor at the time, he said, listen, profit is an opinion. I'm like, oh, that was life altering. Cash is a fact.

I love that. I'm going to steal that one. Thank you.

It's pretty good, right? Profits and opinion. Cash is a fact. And it was true because we might within laws and accounting practices, even being kosher with things, we might push a profit down the road in order to reduce a tax liability or affect some funding or something like that in the near term, but eventually have to pay for it. And so that moment, like how you value things or where you record things can make a big difference in the profit picture. But what you have in your bank and credit is, is a different amount.

That's right. Let me, let me get, let me get a little wonky with you for just a second.

Yeah, please.

And you know, there's a concept in accounting called absorption costing. Right. And so that's if you have, if you have an equipment asset, you want to try and absorb the cost of that over the life of the material that you're producing. So you are actually incented in some cases. If you're just looking at ebitda, you're incented to make long production runs and then to absorb the cost of that equipment in more material. So if I divide that by 100 units or by 1,000 units, I can absorb that over those units and that has a real impact, accounting impact. But that might not be the right answer. Right? Because you may end up with a thousand units and you only really need 500 units or you're only selling at 400 units. And so we create these, we create these incentives, frankly. And sometimes we create metrics and measurements for people in the organization that are, they're doing exactly what we told them to do, but it's just not always the right thing. I think the other thing is just we got to look at what measurements we use, what metrics and KPIs we put in place if we're going to create a cash culture and make sure we're arming people with the right things to measure the right metrics, the right trade off decisions. Because I do think in most organizations people want to do the right thing. They just either don't have the insight like the sales example, or we've incented them to do something that's probably counterproductive.

I would caution people though, don't just add more KPIs because people just get overwhelmed with too many numbers and most of us can't look at a sea of numbers and discern any information from it. It's overwhelming. So if you're going to add a different one, take something out, have focus on only a few critical numbers to drive the business because you can get overwhelmed and then you don't know which one is more important. And that, and that's the decision of CEO and CFO to think about what does the team really need to look at.

Completely great. In fact, I talk about that as a chapter in the book on metrics is we measure way too many things and we confuse the organization. So it's really getting down to distilling what are the right measurements for the right individuals and to incent their behavior.

It's funny, we had this family friend years ago when I was very young who was working on this advanced fighter technology program out at Edwards Air Force Base. And he was like psychiatrist, I think, or psychologist. And his whole thing was how much information in a time of high stress can a fighter pilot manage and how can we present it to them that they can digest it? So the visual, the audio, the color, where in the field of view, how much can they take and still comprehend and act on? It's a fascinating bit. And he's like, look, we can only take so much and even really twained people can only absorb so much.

Absolutely. Let me go back to your bit about complexity in certain sectors. And we talked about construction, for example, and getting the timeliness of billing. And sometimes that's based on completion of projects or completion of milestones that have been agreed upon. And oftentimes it requires the person, whoever is on the front line to be able to do that. Yet we don't honestly often take away some of that or give them the tools to take that complexity away. So to your point about the fighter pilot, if we're making them do 15 different things while they're also trying to fly the plane, we're gonna have error. And so if you, if you're asking a project manager or construction to do 15 different things and then to also be responsible for all of the milestone requirements to get the billing set up correctly, you know, we gotta give, we gotta give folks the tools and the support they need. And you know, it's not hard. It's really not hard. It's not complicated, but it's really getting into the guts of the business and challenging those assumptions of again, who has decision rights, how are they impacting, what are their roles and what can we do to either automate or help them so that they don't have to make that? It's just a no brainer. They don't have to make lots of decisions, but it just is a part of the process of the business.

It's interesting. Some years ago I was working with a team and the senior leadership worked with a process and logistics consultant expert and mapped out the business. And we're looking for opportunities to redesign things and the opportunity to bring in more technology or better technology, different places and that kind of thing. And then the consultant was like, well, let's bring in some more people around the company and add to this, we've got a picture, let's see what they think about this. And so we brought in people and they were like, this is what happens, this is not at all what's actually going on. And they started to rearrange the blocks and mark this and that kind of thing. And we discovered all kinds of issues that we weren't aware of. And all of these were mistakes and delays that delayed the cache coming in. So the intended or design cash timing was completely different than the reality of what the cash timing was in the business because of all of these other operational things. The software services company had a very similar kind of thing. We started to dig into it and they were like, we're not making any money and we're doing things and the operations and the accounting folks were like, look, sales is winning sales and winning sales at great pricing. But we can't figure out how to fulfill it and those guys can't figure out how to bill it because the way you're selling is all a la carte and it doesn't work with our systems and we've got big systems here. It was a profound breakdown and insight. Now there was a Great solution. In this case, the billing and the ops team gave sales a menu. So instead of just doing anything, they now had like a pick and choose menu to draw from. And things got a lot better around the business as a result of that. But it was a mess before then.

I love that, I love that, you know, and you kind of get, you often get it a mess on the back end of that too. So you get your bills out, maybe you get them out as clean as you can get them out and then, but then, you know, for whatever reason the customer's not paying. And a lot of times it's not because they're being deadbeats, it's because something went wrong. They can't recognize what they ordered. Yeah, we short shipped something. And so that whole dispute management process then trips up a lot of companies. And again to your point, if you have part of solving a dispute is coding it correctly. If you have discrete codes and explain to people this is what this dispute is, then I know, okay, now I know who to route that to to get it resolved. But if it's just hey, short, short payment, that's not enough information to be able to solve the problem. So yeah, these things are, to your point, often not that complicated. But it's getting the right people in the room who touch this stuff and then trying to automate as much of it as possible.

You know, it sounds like in the case of the Denim company, it was a lot of small changes. Were there any big righted the ship there or was it all a lot of a thousand improvements?

In that case it was more small changes. There are some examples of, and I do put that in the book as well in the chapters of, you know, kind of bigger things that that can occur. So I'm thinking, you know, there, there was a company that I was working with that had set up a payment, sort of a payment scheme with their vendors where they were going to pay them all at the same time every month. And so when it was put in place, it made sense because it ended up making, I think they moved from like 35 days to what amounted to about a 47 day payment scheme. And the vendors actually initially, you know, even though it was going to delay, when they set this up, staggered, some of them were going to get paid a little bit later. The vendors liked it because it was now predictable because everyone. The other thing about cash is you want to be able to forecast it. If you can't forecast it, you can't use it. So if it comes in, let me just deviate really fast on that point. If I use my tuna fish and green beans example, the reason I was able to make it through those bad days is because I knew that my paycheck was coming in on the 15th. If my employer said, hey, I'm going to pay you at some point in the month, but I'm not going to tell you when, then I'm eating tuna fish the whole month. The forecasting is super important as well. Those suppliers in this example were willing to do that. The problem was the cost of debt started going up overnight. Financing became more expensive. Now the CFO and the treasurer are having a hard time getting the cash to be able to make those one time payments a month. That huge diplomat in cash flow, they weren't able to fund it or they were having. It was becoming very expensive to fund. And so that's an example of a big one time, big change that was critical. They needed to get off of that, but they needed to do so in such a way that didn't erode all the benefits of the 47 days. We had to find a way to stagger that out over a period of time. So sometimes the changes can be sort of silver bullet changes that have significant impact. My experience is most often it's not most often it's smaller process changes. Most often it's really getting an acknowledgement of who has decision rights in the organization for these different decisions. Giving the right kind of tools and fostering that cash culture.

It's interesting, we worked with an app development company a few years ago that suddenly was like we have to get another $2 million line of credit. And that kind. I don't really think you do. Let's run your numbers, let's do some analysis, then let's sit down with the team and that kind of thing. So we sit down and we identify a few changes which they implemented and they didn't need to raise anything at all. The first one was just bill more often instead of billing once a month and waiting bill every two weeks. And they were like, we could maybe even get to doing weekly billing on progress, that kind of thing. The next one was write contracts that were based on time, not milestones. So instead of saying we're going to be this amount when we deliver this phase of the project, just say no, we're going to bill this amount every two weeks because that's when you're paying your people. So let's align the interests of that. And so that also paid off big. That required them to renegotiate with a Few and to start changing and writing new contracts different. And then the big one came said let's maybe stop selling cost plus contracts, cost plus markup and let's start selling specific project delivery bulls. We'll get you that thing done for half a million dollars or whatever it was. And in this time frame with this process and we're going to. And who knows what we're going to spend on it or you don't worry about that. You just know you're getting the project done. And they're like yeah, that's not how our industry works. I'm like just try it and see what the reaction is. Try it a couple times now. I knew because I ran a company just like that doing tech app development and I know that the buyers just want predictable expense and predictable delivery. This whole cost plus thing actually makes them neurotic. Then they start second guessing how much you're paying your people and everything like that. They did all those things and the turnaround in the business was palpable. You could see and feel the peace of mind they had as they got because now not only were they getting paid differently but the margins were greatly. Their effective pricing and margins had improved greatly. By going to project pair raised fees.

Bill you, you brought up something else I'd like to ask you a question on is. And that's when you're talking about that's not how it works in my industry. Have you seen that? Like people getting in the trap of thinking, well I'll compare myself to peers or I'll compare myself to this is the norm of the industry. And lulling themselves into believing that they're doing a good job.

Every time we hear that that's not how things are done in this industry, I'm like ooh, here's an opportunity every time whether it's around an operational thing or what we're doing, how we're doing it, how we're pricing everything. Doing things not the same is a key to profit and cash, I think.

Yeah. And just not lulling yourself into comparing yourselves just to your peers. Right. Because there's so many great practices outside of of industries and you could be the best performing peer in a really bad peer class. Yes.

And not see the all the time. A healthcare company a couple of years ago actually fairly recent. And they're like yeah, this is just the way it is in this industry. The turnover is kind of the way that it is and it's really, really high. And I'm like yeah, let's break that. Let's have some secret sauce. They're like, yeah, we've been working on that for a while, but nothing's really working and that kind of thing. And we're like, well, I. Well, let's change where you're looking. Change where we're working. In this case, we changed a focus on trying to keep people to figuring out who stays and then finding more people like that. Instead of focusing on fixing the ones who leave, let's work on more of the ones who stay naturally.

I love that you said healthcare. I just had a conversation a couple of weeks ago with a senior executive of a healthcare company and she said during COVID there was so much shortage, so people started ordering lots of stuff. Right. But that just keeps continuing. And she said, what I don't need is to compare myself to other healthcare companies because they all did the same thing. And so I don't need to know that my inventory is a little bit lower than up here. So what I need is what sectors of the economy. So there are certain sectors like automotive we talked about, kind of went through some existential crises. So they got really good at this. And there's a lot of lessons that can be learned from one sector to another if they just have never developed that muscle before.

You talked about a chemical company in Getting Ready. Talk to us about that one maybe as our final story.

Yeah, there again, they were very profitable. They are very profitable. And a company that really does churn out a lot of cash. But this is that example. And actually I kind of picked, I used author's prerogative to take the quote from the CFO and used it in my book of saying, you know, we've become a bank. And the point that he was trying to make is that, you know, they, they, when they looked at even like their buy sell relationships. So they were, they were selling to some of their customers and buying from some of their, their customers or the buy sell relationships. They were always giving the best terms away. They were either having to pay faster to the same people that they were having slower terms with, or vice versa. The light bulb went off and he was saying it. That's this point about not fully understanding the business, not fully understanding what the cash is for and what the capital's for. And so he started instituting a cost of capital exercise for business units. If you want investments, there's a hurdle rate, sure, but we're going to charge you the cost of capital. We're also going to monitor your capex investments and see if they really did pay back what your Planned payback was. And that was this whole notion again of the capital dollars all cost the same and return different, have different returns. Right. So it was really, that was a fundamental shift of way of thinking for those folks to fully understand the importance of some of these decisions on the balance sheet.

Yeah, I think it's really great to get more people involved in thinking about the cash of the business. How can we empower them to understand the impacts on the cash position? Because when it's dialed in, right, like you sleep better, you don't stress, you think more strategically and opportunistically about what's happening in the world. There are the internal events of the company, the business model, the industry practices. Then there's also the world events, like you pointed out, like, you know, hey, we don't have any toilet paper to sell in Covid. Right. Well, but my buddy over there's got a bidet company, so let's sell those. I love it. I bet sales did pretty well in that category.

Exactly.

In late 2020 or early 2020, probably. Well, this is really helpful. The book Cash is King, Peter King, for coming on the show and talking with us a little bit about this really important topic that and when you get it right, it makes such a difference and it's such a pleasure to. When you finally get it right. I love that you wrote this in a story style because I think it helps turn a technical subject into something that we can really relate to, even if we're not so technical in the world of finance.

I promise it will not put you to sleep.

Thanks. Reminders again for our listeners and viewers. If you want to know more, if you want to do a workshop with us and start to grapple with your situation, your growth challenges, we've got workshops every month. We've got some free tools. We've got over 500 episodes on everything to do with the people, strategy, execution and cash of your business and the particular world of trying to grow the business. You'll find all that and more@scalingcoach.com ScalingCoach.com is our website. PeterKingma.com is his website. The book is Cash is King. Some other shout outs. Thanks to Christelle and Cameron and Seth and the team at Storyon who get our show scheduled, produced, prepped, out the door every week. And to my friend and mentor, Vern Harnish, who created the whole scaling up framework and the Rockefeller habits that came before it. Thanks again everyone for watching, for listening. We'll talk to you again next time. In the meantime, keep Scaling Are you ready to turn your goals into daily wins? You should check out our Scoreboard software powered by Align. It's the official software for scaling up. With Scoreboard, you'll get an AI driven coach for priorities and KPIs and it'll help keep your team focused on what matters most. With Align, you can track your goals in real time and you'll even see results on the go. With their mobile app, you can rest easy knowing that Align has world class onboarding and support to set your team up for success. This is really more than just software, it's what I actually use to manage growth in our scaling up client teams. Unlock clarity and results with Scoreboard by Aligned. To try it now, go to aligntoday.com Bill G One more time. Aligntoday.com Bill G that's aligntoday.com Bill G Check it out and try it now.