The Importance Of Correctly Managing Working Capital And Cash Flow

download (9)As your business grows, the more necessary your working capital becomes. Working capital is the money your business requires to function. If you don’t have enough, then your business is bound to fail. It’s a fact that many businesses that seem to be thriving are forced to shut down because they don’t have the ability to pay off their short term debts when they are due.

For this reason, it’s really important to employ effective working capital management strategies. It’s common for businesses to have the need to loan the money used to finance their growth. Based on the credit worthiness of your business, financial institutions will decide whether to grant you a loan or not. Credit worthiness is determined by two main factors: the existence and extent of your collateral and the liquidity of your business. These are reflected on your balance sheet. You can determine this by getting the difference between your assets and your liabilities.

This difference and your working capital ratios give creditors an idea of just how capable you are of paying your bills. Technically, it is your investment in current assets, including cash, inventory, accounts receivable, and marketable securities. Your current liabilities, on the other hand, are comprised of your accrued expenses, your accounts payable, and your near-term portion of loan due.

The difference between your current assets and your current liabilities is your net working capital. The term “current” means that they are to be liquidated within the period of one business cycle, which is typically a year. The management of this is extremely important for the growth and success of your business. This involves the decisions you make regarding short-term financing.

It’s all about managing the relationship between your short-term assets and short-term liabilities. It aims to ensure that you are able to continue operation with enough cash flow to meet your short-term debt and upcoming expenses. You can tell that your management is sound by your ability to convert your assets into cash that will go into paying off your bills. The ease with which you can do this is called “liquidity,” which is greatly impacted by the rate at which accounts receivable and inventory can be turned into outright cash.

How to Become a Project Manager – Selecting Your First Project

images (34)Having completed your project management studies you may feel well equipped to take on anything, no matter how challenging. However, as I am sure you have observed, some projects are more difficult than others. It would not be a good idea to take on something that will have you quickly stressed and wondering if you’re ever going to be successful.

Project complexity is always important to understand and it is something to pay special attention to when you are starting out. When I look at complexity, I look at two major aspects of a project i.e. technical complexity and stakeholder complexity.

Technical complexity refers to the difficulty associated with delivering what you are intended to deliver. Clearly building a garden shed is a lot less complex than designing and developing a rocket. What is important for you, is to ensure that you take on something that you are confident you can progress from the technical standpoint. In this regard it would be good for you to project manage something that you personally know how to deliver. If you have been a developer of sales and distribution systems, then taking on delivery of this type of software should be well within your capability. If the selected software uses the tools with which you are familiar, then so much the better. If not, then you will likely still be able to navigate the project as you will be working from the position of knowledge previously gained.

Stakeholder complexity refers to the complexity around the players involved in the project. This includes sponsors, board members, senior managers and those who will be directly affected by the outcomes of the project. This aspect of a project used often to be overlooked. While this is less likely to happen these days, the stakeholder complexity is still sometimes underestimated and those affected can feel they were not adequately consulted or prepared for the change. The more stakeholders there are, the higher the level of complexity. More importantly, the necessary interaction between stakeholders and their potentially conflicting requirements can lead to significant complexity. In this case, you have to find your way through the necessary consultation, assessment of pros and cons and presentation of your analysis such that informed decisions can be made.

Challenges can become significant when technical and stakeholder complexity interact. You may be managing a project that technically you are able to deliver in a number of different ways. However, without agreement on which solution is to be implemented, you cannot bring in your project.

 

A Shift in Focus

download (8)Did you wake up happy today? Did you jump out of bed excited to get to work because your work makes you feel valued, listened to and moving forward in your career and your life? Do you feel unwavering loyalty for your employer? Is your work ethic rock solid? Is this not the type of employees that businesses dream of; employees that are happy, loyal, and have great work ethics? The question is,

“How do employees and employers get to this ideal working environment?” Maybe, a shift in focus is needed.

Have you ever heard of appreciative inquiry? No? Then, today is your lucky day!

Here is the definition of what appreciative inquiry means, taken from the book-Appreciative Inquiry-A Positive Revolution in Change by David L. Cooperrider & Diana Whitney. (1)

“Appreciative Inquiry is the cooperative, coevolutionary, search for the best in people, their organization, and the world around them. It involves systematic discovery of what gives life to an organization or a community when it is most effective and most capable in economic, ecological, and human terms.” (1)

Imagine taking the focus off of what is wrong and focusing instead on what is working. What makes your business or organization stand out in a positive way? What empowers your employees and what do they do better than anyone else? Appreciative inquiry fosters asking positive questions that strengthen work environments to bring out the best in people. Appreciative inquiry assumes that there is future potential for positive change within each of us.

“Human systems grow in the direction of what they persistently ask questions about, and this propensity is strongest and most sustainable when the means and ends of inquiry are positively correlated. The single most important action a group can take to liberate the human spirit and consciously construct a better future is to make the positive core the common and explicit property of all.” (1)

Imagine bringing out the best in your employees by focusing on their strengths. How can you make your work environment magnetic where people feel so connected to their work and organization? Think about it. What would happen to productivity and sick time? Productivity would go through the roof and sick time would plummet. How exciting is that?!

Here are some notes I took, after reading the book Appreciative Inquiry- A Positive Revolution in Change (1), of how one organization answered the question,

“How can we engage the positive potential of all employees toward transforming the company?”

1. Set a goal of five stories of positive performance of every negative one.

2. They trained 50 people as internal change agents on various levels, in Appreciative Inquiry.

3. They also trained a large number of frontline employees.

4. They created opportunities for sharing new positive stories.

5. They created an Appreciative Inquiry teaching tool for all employees.

6. The Appreciative Inquiry model was introduced as a new model for unions and management.

Have I given you food for thought? If so, that’s great! Imagine starting each day knowing you are part of a positive revolution for change. Imagine how this concept will affect your children and future generations! You are laying the ground work to help unleash your and their full potential.

 

Leadership – An Introduction

download (7)The objective of this article is to look at leadership in more general terms. Another article looks at leadership as it relates to innovation in more depth.

What is Leadership?

I believe that this is a difficult question to answer, as there are probably as many different opinions as there are economists! A summarised view is:

· Leadership is setting strategies;

· Leadership is thinking;

· Leadership is being visionary;

· Leadership is getting things done;

· Leadership is being trustworthy and inspirational.

All of us probably think that we are great leaders when we review this list and compare it to how we conduct business and ourselves. If that is the case, then we would not have any bad leaders, and this is clearly not the case.

The question, therefore, has to be this. What makes a leader a good leader?

My simple answer is this. To be a great leader, it is necessary to demonstrate your commitment and understanding of the above points.

SETTING STRATEGIES, THINKING AND BEING VISIONARY

Leaders need to spend time setting strategies. In order to set strategies, they need to spend time thinking. They need to think of where the organisation has come from, where it is now, and, particularly important, where they want it to go in the future. Without this knowledge, the organisation is no different to a rudderless ship, weaving around the seas with no destination in mind, and therefore unlikely to get anywhere at all. Proverbs 29:18: “Where there is no vision people perish”.

Having identified where they want the organisation to go, they need to articulate this to all stakeholders, both internal ones (employees and management) and external ones (analysts, shareholders, etc). Without this communication, the organisation will be pulled in all directions. Leadership is more than merely talking about the strategy. Leaders need to communicate it – they need to lead the stakeholders through said strategy. Good leaders can do this in an appropriate manner which all stakeholders can understand. It is not just about formal meetings, but includes informal one to ones, chats in the corridor, on the way to the car park, near the coffee machine, etc. Consistency is critical, do not give out mixed messages.

GETTING THINGS DONE

Any person holding authority can get things done. A good leader will utilise their skills to ensure that things get done, efficiently and effectively. This means that tasks are done utilising the right resources with the right result. Poor leaders, as I said, do get things done, but without being efficient or effective.

BEING TRUSTWORTHY AND INSPIRATIONAL

This is the most difficult aspect to understand or to develop. In my opinion, this is the facet which really sets great leaders apart from good leaders. These abilities are both critical. One looks inward at the leader (integrity) the other looks outward (being inspirational).

Trust is very difficult to create and extremely easy to lose. As a leader, ‘actions speak louder than words’, do what you say you are going to do. This builds trust.

So what do inspirational leaders share? Four qualities include:

· They selectively show their weaknesses – vulnerability can reveal approachability and humility;

· They rely on intuition to gauge appropriate timing and course of actions – an ability to interpret soft data is critical;

· They use empathy in dealing with employees – they care about what employees do;

· They reveal their differences – they focus on what is unique about themselves.

Being inspirational is all about getting the best from people. It will be noted from the four points that these are all soft things which can be done.

Finally, four popular myths about leadership:

· Everyone can be a leader – not true. Not everyone wants to be, so do not have the motivation.

· Leaders deliver business results – not always. If it was the case, stock pickers would pick companies with great leaders.

· People who get to the top are leaders – not necessarily. Those at the top may have got there on political acumen alone.

Leaders are great coaches – rarely. Can someone who is inspirational always impart knowledge?

Innovation for Growth is a UK business consultancy firm which specialises in: strategy services; innovation audits and advice; business plans and planning; and business research.