LeanSix Sigma

Long Live the King (Cash)

By Ron Pereira Updated on May 14th, 2020

Pile of MoneyIf you are involved with a for-profit business in any way please remember one thing – cash is king. Of course respecting people is absolutely critical. But cash pays the bills. It buys things. It pays salaries. So without money in the bank all the respect in the world means little.

Sure, we can borrow money and hope to pay it back. But most executives I know would like nothing more than to see a nice pile of money in the bank. Further, if we are talking about publicly traded companies there are some nice people on Wall Street who also have vested interest in your financial stability.

While there are many ways of freeing up cash my all time favorite method is to increase the rate at which inventory turns.

Making Bicycles

The easiest way I know of to make people understand what we are talking about here is to take it to their garage.

Imagine you have started a business in your garage assembling bicycles. You have found your suppliers for the various components. You have negotiated the T’s and C’s (terms and conditions). And, lastly, you have spent most of your life savings – much to the chagrin of your significant other – on the inventory needed to start things up.

Reality Check

Let me put it another way – you’re broke. You have no more money in the bank. And if you don’t convert all the fancy bicycle frames and pedals (a.k.a. as assets on the balance sheet) into profit soon your kids grumbling stomachs will keep you awake at night.

It’s not a pretty picture is it? But for some reason most people don’t think of things this way. When it’s not our money, or our inventory, or our garage, or our children being directly impacted its easy to turn the other cheek.

Well, friends, I think its due time many of us take a more personal view over things like inventory and cash flow. For those of us in the west the survival of manufacturing as we know it may depend on it.

Photo by Tracy O

  1. Rob Ukatz

    February 7, 2008 - 7:54 pm

    While I agree with you here I think the garage example is a little simplistic considering the complexities of the “real world”.

    But you are 100 percent correct on how we would all do well to at least pretend it was our own business from time to time.

  2. Alan Carter

    February 7, 2008 - 8:06 pm

    I disagree with the remark of the example being too simple. I think it is perfectly relevant for many companies.

  3. Ron Pereira

    February 7, 2008 - 8:35 pm

    Thanks for the comments gents.

    I think it’s healthy to disagree once in awhile. So, yeah, Rob… listen to Alan the man knows what he’s talking about!

    Ha! Just kidding. Thanks for stopping by guys, seriously.

    Anyone else have a hot sports opinion to share? Please do share if you do.

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