Oct 23, 2012
By John Cho, Partner, KPMG Enterprise
Successful enterprises are usually defined as those growing in revenue and profitability. Nonetheless, unless the business owner converts that to cash opportunities to create value could be missed.
The reality is cash performance drives value - whether it's used to finance reinvestment, return cash to the proprietors or capitalize business valuation on a sale.
Simply put, cash is a tangible measure of success. The more cash a company owner can free up, the more value can be created. In fact, many enterprises can realistically expect to take out up to 20% of their working capital as a source of cash flow improvement.
Businesses should employ straightforward reporting and monitoring tools to help keep a focus on cash flow. Cash metrics can help you recognize where and why cash is ties up. For example, companies may only look at day sales unpaid when perhaps they should be looking into areas such as the number of overdue receivables or the quantity of sales contracts with prolonged terms. Cash flow projection tools can be used to observe performance and provide transparency into anticipated cash flow performance.
When looking for internal sources of cash, don't just head over to your finance team. Just because the control the cheque book doesn't mean they make all the decisions that can tie up the money. Opportunities to free up cash flow will arise through improved processes and controls.
If you engage the entire business, from procurement and operations to sales and marketing, you'll quickly recognize that each function will have differing and unique goals and objectives. It's important for all groups to work together so they can discover areas of opportunity to improve cash flow as well as build and develop more co-operative working relationships across the organization. Ultimately, all members of company should be seeking to achieve the same goal: building and driving the success of the business.
John Cho is a Partner with KPMG Enterprise™. He can be reached at 416 777 3994 or firstname.lastname@example.org
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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