So you’ve identified opportunities… what now? This is the part where you can get creative! You’ve done all of the analytics, and now you have to think outside of the box and get creative on how to drive your profits.
Our founder, Jim Wilkinson, went back over my career and realized that the advice he gave really fell into one of three categories – the 3 P’s of Profitability.
Procurement – or “cutting costs.” He found a way to cut costs and find things cheaper.
Pricing – either analyzing where we had slippage or where we could fire customers. Anything to increase the pricing to the organization.
Productivity – as previously mentioned, the “silver bullet” is measuring and managing the productivity of an organization to increase value. We call this the “silver bullet” because it’s a way to avoid firing your valuable employees and raising your prices.
So that’s how we address profitability. When it came to cash flow, one of the biggest paradigm shifts we had was we started monitoring and managing our cash conversion cycles. For those who don’t recall, the cash conversion cycle is (DSO+DIO-DPO). It is a measurement of how long it takes from the time they purchase your product through the time you collect your receivable and pay your bills.
One of our biggest tricks was managing and shortening the cash conversion cycle, freeing up hundreds of thousands (if not millions) of dollars. Those are two tools we focused on, but we realized that we also needed goals and solutions. Often, you may not have the solution in your own, personal experience. So how do you get it? Networking. You should be able, within four or five phone calls a day, to find someone to give advice on how to solve the problems in your company.
Once you’ve come up with a plan for your solution, that’s the art of being a CFO. You should then update your action plan, maintain your progress, and communicate your progress. This action plan should start from your beginning efforts, and carry out through the rest of your goals in your process.