What's the best opportunity?

Simple rules about creating value 

I addressed a group of CEOs in Asia last month. Several had a problem. Their business was cash flow positive. They had it coming in quicker than it was going out. Funds were piling up in the bank. 

So what’s the problem?

The fact is, money in the bank earns well below the return on capital they usually generate in their business. The excess cash wasn’t really creating value.

It’s the opposite of leverage, where, if you borrow money for less than the return you generate on that money, you create value. In theory, at least.

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Staying bootstrapped

Keeping cash flow strategies green

Want to reinvent your business? A popular strategy is to return to the startup model. It reinvigorates the enthusiasm and drive that characterize a business launch, spurring innovation and idea generation. 

We see it in notions like “skunkworks” and “idea labs”. The track record, however, is patchy. Ideas emerge, but they often lack traction in the marketplace. Plenty of great innovations are still born; they are long on vision but lack financial discipline.

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The sins of synergy: buying business growth vs building it

One plus one usually equals one, or less

Of all the great strategic buzzwords, the dubious merit award goes to synergy. Often trotted out as the most remarkable logic behind some of the greatest mergers, its track record is dreadful.

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Cash flow 101: keeping it simple

Think like your accountant

When you look at a complicated cash flow statement in an annual report, it might look like accountants do anything but make it simple. Yet if you want to take some fast action when cash is tight, the basic structure of a cash flow statement makes a very handy checklist.

It’s made up of three very simple categories. Cash is either raised or spent in:

• operating activities
• investing activities
• financing activities

In plain English, those three things mean what you do, what you’ve got and how you fund the first two. That’s pretty much all there is to cash flow. It’s not exactly rocket science. 

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An environmental checkup for business

How’s your economic eco-system?

Business is often asked to consider two popular notions: sustainability and the environment. At times – and probably too often – they are simply buzzwords; at other times, they focus on the need for everyone – business included – to take responsibility for the sustainability of the planet.

That’s all well and good but it need not stop at the natural environment. We can learn a lot more from environmental science across the entire spectrum of management practice.

Your business does not operate in a vacuum. It depends on all sorts of stakeholders. Just think of the six basic ones: shareholders, managers, employees, suppliers, customers and the community. Together they make up the ecology of your business. Call them species if you like.

They all depend on each other and have needs which have to be served. Often we focus only on serving the customers. Yet you can’t expect your business eco-system to function optimally if you ignore the others.

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