What you must do on your balance sheet, profits and growth and heading into 2021 (part 4 of 4).
This week on The Growth Whisperers we continue the fourth of a four-part series where we discuss the important things you need to do heading into 2021. In this fourth part, we discuss two aspects. How to focus on achieving consistent profit generation and growth in 2021, and how to build your balance sheet to withstand the biggest storms.
How to focus on achieving consistent profit generation and growth in 2021.
Brad and Kevin talk about the three critical things you must do now to ensure you can achieve consistent profits and growth heading into 2021.
How to build your balance sheet to withstand the biggest storms in 2021.
Next, they talk about why you need to strengthen your balance sheet and the main things you must do in order to achieve that heading into 2021.
Episode 40 – The Growth Whisperers
The Growth Whisperers is a weekly podcast hosted by Brad Giles and Kevin Lawrence two advisors to mid-market businesses, one Australian, one Canadian, who each work with CEOs and Leadership Teams across the world with a mission to build enduring, great companies. Each weekly episode covers interesting situations and questions from the world of strategic planning, leadership development, talent and hiring in high growth entrepreneurial companies where real results matter.
Kevin Lawrence 00:12
Welcome to the growth whispers podcast where everything we talk about is about building enduring, great companies. These are flash in the pan companies, these are companies that do amazing work, create amazing value for the customers for decades, generations for years and years and years to come. And that’s what we’re passionate about. I’m Kevin Lawrence. I’m here with my partner, Brad. Giles. Brad, how you doing today?
Brad Giles 00:41
Very good. It’s so nice to be having a break. It’s so nice to Yeah, just be winding down after the year that was 2020. And just, you know, slowing down a little bit, catching your breath, recovering all the things that we that felt so far away in 2020. It’s awesome.
Kevin Lawrence 01:03
It is. Yeah, you know, and as you were talking about 2020, I’m thinking, but 2021 is already where my brain is at. And we’re recording this in 2020. But you’ve been listening to it in 2021. So, yeah, you know, it’s, um, it’s exciting to make it through this year and see some of the major innovations that have happened, the lessons that have happened, and a reminder of how we can adapt almost anything and why how did we adapt? So hey, so What are we digging into? And talking about today, Brad?
Brad Giles 01:35
Yeah, so we’re part four of four. So we’ve done three previous parts each of the last three weeks. So this is part four of four. We’ve previously spoken about the people and the strategy and the execution that you need to focus on heading into 2021. And now we’re focusing on cash in the balance sheet. So what do you need to do on cash and the balance sheet heading into 2021, given all of the calamity that was 2020, given so many major changes that we’ve been through?
Kevin Lawrence 02:33
Awesome. So specifically, we’re going to kind of dig into two parts today. Number one is about consistent profit generation and growth. You know, lots of people get excited about growing their top line and revenue growth and think it’s a wee bit dangerous to look at a business that way. It’s interesting, it can make you feel good, but true growth of profit and generating more profit. And subsequently, cash is some of the most important and I think ideal measures of growth. So we’re talking about that second party is on that balance sheet, what do you get to do to build a big, fat rock solid bulletproof balance sheet. So you can weather any kinds of storms, or viruses that come along so that you can find ways to pivot and change your path and to change your approach. So that you can continue to endure, even if things get a little bit weird, a little bit messy for a while
Brad Giles 03:33
to weather the storms, because, you know, the perfect example about weathering the storms was what happened in early 2020. We know that, but it’s I’m not saying that they will or will not be another storm immediately. But we’ve always got to be prepared, we’ve got to wind dry, like the objective, broadly, is to enjoy the person who doesn’t make it to the end of the race, you know, doesn’t endure to even finish. I mean, you’ve got to be able to get through it. And that’s the essence of building the balance sheet and taking a moment in January to say, Okay, how can we strengthen our balance sheet in 2021?
Kevin Lawrence 04:18
Yeah, and you know, as you’re saying, You don’t know when there will be another storm, but they’re always is, there’s always something else that happens things are continuous, you know, get weird and events happening around the world economic events, social events, whatever it happens to be, and we just need to be prepared, so that we can handle those things. And a big fat balance sheet gives you options. Cash always gives you options. You know, it’s funny, it’s talking over the weekend we’re doing there’s a group of us that invest in some real estate developments through some guys we know that run a great development company. And there’s another project coming up. So we got all of our kids on board so our kids could learn about real estate, real estate development and investing. So we had an hour session that was just awesome last week. And as we’re going into it, and these guys who have done amazing developments all around North America, were on there teaching the kids and they’re saying, you know, the thing about real estate and real estate investing and development, are you only ever lose money if you’re forced to sell. Especially if you’re investing in markets that are growing, you know, if you’re, you know, in a small mining town, and that meant mining, that type of mining gets banned by the government or the mines dry up, and there’s no demand any more. That’s a different situation. But in a major market, as we live in a Vancouver, or you know, your major cities like Sydney, or London or other major cities. Yeah, that you’re only there only lose money when you’re forced to sell your biggest problem penalty is time and to wait. But you can only afford the luxury of time if you have enough equity in your investment or enough cash to fund it to bridge the extra time. Yeah, and that’s why cash and balancing sheet is so important in business it’s the same is that you only truly lose your business, if you run out of time. If you can wait and wait for a better market or better opportunities for your team to create better innovation, you’re fine. But running out of time is the piece that really gets people running out of time, you know, running out of cash.
Brad Giles 06:23
Kevin Lawrence 06:24
So why don’t we drop into, you know, you know, ensuring that you know, that you endure, and that kind of thinking, and one of the things we want to share today is is that, you know, if you look at the most successful companies who work with, that are enduring great companies, although they want immediate returns, and they’re looking for quick returns, if they can, but they think about a lot of things on at least a 10 year investment horizon, at least, because they’re investing and building for the future and thinking beyond the market cycle that we might be in at this point. So for example, you know, people that are really thinking or investing today and whatever their businesses or market is, and you’re thinking about the little bit of a mini-boom that we’re having, depending on your market, but lots of markets are booming. They’re seeing that there will be an adjustment at some point, and then there’s going to be another boom. But many of them are investing towards the next boom, and not getting too caught up in the short term. If they have those great big balance sheets.
Brad Giles 07:26
Yeah, it’s interesting, from a personal perspective, as an example, if you were going to buy a house to live in, if you can say, Would I still want to live in this house in 10 years? Now, we might not all be blessed with the ability to do that. But if you could, that’s the type of thinking if you were to buy a car, would I still want to own this car in 10 years? If you were then going to apply it to your business? If I was going to employ a staff member? Would I want to employ them still in 10 years? If I was going to buy this office or open this new office or whatever it might be? Can you apply this 10 year thinking rule to your cash decisions rather than having no timeframe? So it’s not that the opposite would be short term, it’s that people don’t even apply any kind of time frame around it with this. They don’t even think about it. So just beginning to say if what I still want to do this in 10 years time.
Kevin Lawrence 08:29
Yeah, it also gives you a sense of the confidence you have in your business, your strategy and your team. Yeah, because you’re not willing to make investments on a 10 year time right now maybe you plan to no longer be the owner of the business or the leader. That’s a different situation. But if you plan to still have the business, you know that you still own it, or it’s in your family or in your portfolio, would you still make those longer term investments and at least think long term? And, you know, when Brad and I were talking earlier in the show, there’s a great author and CEO jack stack. He’s got a program he teaches called the Great game of business. And as SRC capital, Brad is the companies that right?
Brad Giles 09:13
Yes, Springfield remanufacturing Corporation. Yeah, that was the original, but that spun out about 60 different businesses from that have substance like serious businesses. Yes.
Kevin Lawrence 09:27
And our philosophy is teaching everybody in the company, all the numbers in the business, how to budget how to forecast on a weekly basis, so that they can really be tuned into the work they’re doing and how it contributes to the company’s success. so busy everyone is trained to think like an owner and it’s not just propaganda, it’s really true in the business and yeah, then many people in the company have grown up and went and started off other businesses which the group is funded and they built a great empire. But one of the things that jack talks about and he was a member of session I was in, he was explaining I was chatting with him about this, he’s saying that they spend a lot of time trying to predict economically trying to have their belief about what the markets going to be in the next couple years, like they use a lot of forecasting around the markets, you know, the economic economy. And they have a lot of indicators that they follow. And you know, when we’re talking about this is they talk about whether they’re up phase or a down phase, and they kind of have their own, you know, forecast they work with predictions they work with. And then they know in different phases, they’re actually in different modes of whether it’s investing or conserving cash.
Brad Giles 10:40
Yeah, I remember seeing him as well, it’s a, it’s a fantastic example of long term thinking employed to today’s priorities. And so what they’re doing is they’re saying, We’re, if we’re in the accumulation cash phase, it would be generally when the economy is in an up phase, and then they accumulate that cash during the upturn. And then when the economy turns down, they’re buying assets at a bargain basement price. And I remember he gave the example that they were, they were buying land, and I think it was at $100, a square foot where it was like four or $500 a square foot, and it might have been industrial land, it was four or 500 US dollars a square foot previously in the up phase. And that meant they were able to come in and buy at a bargain basement price, and then you know, grow from there, by the time they got to the next up phase went up to four or $500 per square foot again. So how can you think like that? How can you begin to think Well, given your geography or whatever it is, what phase of the market? Are we in? And should you be in an accumulation phase for when the market goes down? Or alternatively, if you’re in a down market? Do you have the cash to capitalize on that?
Kevin Lawrence 12:02
Yeah, so let’s start with our kind of cash principles, because the first thing is to accumulate the cash. So you have the opportunity to and you’re the ultimate measure of the business is consistent profit generation, and growth on that. That is the ideally, growing that profit generation, which ideally, is cash generation. So there’s kind of three key things. But the first thing is we want to look at is, it’s the discipline of profit, and most businesses have it when they start not all but most. But it’s really, it’s the profit discipline and analyzing every decision based on its contribution to profit, not revenue, not necessarily even gross margin, all that is a very great place to look, we have another podcast just on gross margin, Brad and I both love that number. It’s a key driver, the indication of strategy, etc. but truly looking at the bottom line profit impact. And if we know if we look at the most profitable companies that I’ve worked with, they pay a lot of attention to profit, shocking. I’ve had many who don’t, many who focus a lot on revenue growth or other measures that, you know, and I want to be kind in how I say this, but many of those that are many ways of vanity metrics, their volume kind of metrics, they might make you feel good. But the idea of a business is to serve a greater purpose, and generate profit. So that one, it can reward shareholders and the people in the business to it’s got the resources to continue to grow and make its impact in the world. So looking at as many decisions as you can, through the filter of profit. And that’s not easy. Your finance people might get a little bit frustrated, because you have to get a proper appropriate allocation of overheads, etc. You know, and I never forget, as an example, remember looking at one part of a company, and they had a whole piece of business that was very low gross margin. And on first blush, you’d say, yeah, this is low margin business, it’s not worth it. But when you really dug into it, it did not consume almost any overhead at all. So let’s just say the business ran at a 25% gross margin normally had 15% overhead. So that would leave 10% of the bottom line. Well, this line of business had about a 15% overhead. And if you weren’t overly sophisticated and looked at it as a 15%, gross margin, you know, if it had a 15% gross margin, and there was a 15% overhead, you could fairly, very quickly deduct that that business won’t make any money. The overhead will consume all of the margin. But if you realize that takes almost there’s no labor, there’s no almost executive time. There’s almost no administrative time. Because it was buying containers a product and directly shipping it to another country, they never touched it, they never paid for it, like didn’t even touch their their their income statement. And the way that they had the payment terms set up with a vendor it was the vendor. So the who they bought it from would invoice directly. And just give them some basically essentially like, as a commission on it anyway, it’s a little bit complicated. The point of it is that it was actually some of the most profitable business we looked at through the lens of profit. Yeah, but on first glance, it didn’t look very good.
Brad Giles 15:33
Well, that’s the old statement. That’s the old saying, isn’t it? revenue is vanity. Profit is sanity, and cash is king. I mean, we all know that one. And that’s really what we’re saying here with this first one, just think about the decisions that you’re faced with going into 2021. And how many of those are about vanity about volume metrics? Because what really matters in this incredibly volatile world that we live in at the moment, more than ever, perhaps, is the sanity of profit. So how are these things really contributing to your profit, take a moment to look at that. So then, if we move on to number two, what we’re talking about here is, is going a little bit deeper onto number one, perhaps, but perhaps formalizing that to another degree, which is to have investment criteria, just a simple set of investment criteria that you can work to. And that could be three to five things. So we’re not going to invest in a person, or a piece of equipment, or machinery or plant or whatever is we’re not going to invest unless it meets these criteria. And examples of the criteria could be what’s going to be its of its impact on our profit per x, is it going to positively impact their profit per x? Is it going to align with momentum on our flywheel? Are we able to fire bullets before cannonballs to do a small trial? Before we go in on a larger investment? And then things like is it How will it impact our cash reserves, a lot of those time types of things. So for the organization, broadly thinking about building a simple investment criteria, that a discipline that you’ll stick to.
Kevin Lawrence 17:35
Yeah, and although it sounds basic, it makes it easier to filter through some of the decisions that you probably don’t want to waste any time looking at. And it kind of gives your team some marching orders or kind of set them on a, you know, a hunting trip to look for the right kind or hunt for the right kinds of ideas. That would be worthwhile considering and, and having an impact on your business or, you know, in some cases, if a small little smaller than that, you know, if it’s, if it’s going to cost $5,000 and pay for itself in six months, we don’t even need to talk about it, just go do it, do it within a budget you have or something like that.
Brad Giles 18:12
And that’s how I’ve used that previously with leadership teams is we want the different departments, divisions, etc, to be genuinely competing for capital, in with integrity, right, we want them to create meaningful business cases that all meet that criteria. And they know how to assess the investments that they’re effectively asking for the people again, or machinery or whatever it might be. So building that, and distributing that to the other leaders in the leadership team and their teams to work through.
Kevin Lawrence 18:50
Yeah, and ideally, you have more options you could invest in, then you have the capital to invest in, or the appetite to invest in. So it gives you choice. So because there’s always going to be mediocre ideas, good ideas, and great ideas, and then and then amazing ideas. And you want to be able to have a process to choose from those both to sometimes enhance the thinking of your people and to just to pick the best ones and drop the rest. So the final piece we have here is to leverage the power of this thing called cash conversion cycle for your reporting, and your comparison or analyzing different decisions and cash conversion cycle in simple terms. Now, if you haven’t dug into it, it is amazing. Not everyone reports on this, but it gives you a simple look at cash in terms of the number of days of cash that a key part of your business uses. And for example, you know inventory, like if you have $10 million of inventory today, and you think that that’s okay, but as your company grows Well, now that 10, a comparable numbers 20. And sometimes people’s brains don’t adjust properly to the growth, where if you look at inventory and saying, look, we have 37 days of inventory, and we know as the revenues grow, the 37 days would stay the same. And ideally, we drive it down to 10 days, five days, no days, if your model will allow it, the point of it is, by looking at inventory, receivables, payables, or other things in a system in days, it helps you see the time, and it’s the time value of money and the time that things are locked up in processes that really can hurt or help a business. And the idea of cash conversion cycle, it’s from when you invest $1 in something in the operations until it comes back through receivables into your bank account. How long does it take for you to turn $1 in your system? It’s the ultimate measure of cash efficiency of a business. It’s amazing. And it forces a lot of mind blowing thing. There’s an article called How fast can your company afford to grow? And the authors? The names will come back to me in a minute. But they came up with this mod. You got the name there, Brad?
Brad Giles 21:20
I’m thinking Churchill.
Kevin Lawrence 21:23
It is Neil. Neil Churchill.
Brad Giles 21:25
Kevin Lawrence 21:26
Neil Churchill, how fast can your company afford to grow up, there’s a Harvard Business Review article, it is out standing. I’ve gone into companies that have been in business for 20, 30, 40 years. And then the founders eyes open a mile wide and go. If I had had this 30 years ago, I wouldn’t have had the financial troubles. I’ve had it is outstanding. And it’s a simple number that everyone can understand. And it’s not all in accounting speak that confuses people.
Brad Giles 21:57
Yeah. And so it’s like a relay race, you begin sales is a sales process. How many days does that take, like production inventory process? How many days does that take delivery process? How many days does that take? And then the billing and payment process? How many days does that take? The objective is you add up all of those days, and that’s your cash conversion cycle, we want to find all of the small tactics and activities that we can undertake to shrink that if you can take 10 days, for example, off your cash conversion cycle, it could actually create a huge amount of cash. And that’s what we’re suggesting really heading into 2021. Just stop maybe with the leadership team and say, let’s run the cash conversion cycle exercise. And what are the activities that we can do to take a few days off all of these components of that relay race.
Kevin Lawrence 22:51
And not only this, put more money in the account, it can allow you to grow at a faster rate without needing external capital. So it allows you is called SFG: self funded growth, which is the ultimate form of growth. It’s, you know, I’ve seen companies that can go and you can do some calculations based on your existing, you know, cash model and your cash conversion cycle. And you know, some companies that can grow at 9%, the fastest they could actually grow without choking on cash, is 9%. Because of this, we go in shortened cash days by 30%. They can grow up to 100% a year if they want, it is magical. But companies don’t know is that if you don’t really understand cash, and most people don’t have a clue. Everyone thinks about profit. People or executives are not trained in the impact to cash. They might understand the bail and balance sheet, but they usually don’t take into account the core of the relationship between the two. Yeah. So what you can do is grow your company so fast that you choke it, and starve it and get yourself in a cash crunch. It’s outstanding stuff, understanding cash conversion cycle, making decisions through that lens and we freed up hundreds, I think up to like $180 million. cumulatively we freed up in companies with that tool, it is an believeable and at the end of the day, it takes money that stuck in your business or stuck in the market and puts it back in your company for growth capital or other uses. So three things around cash consistent profit generation, you know, is the driver here. Analyze decisions based on impact to bottom line, revenue is vanity. Profit is sanity. Pay attention to profit, and then have it have a set investment criteria because you’re teaching your people how to think like business people and make good decisions. And then leverage cash conversion cycle, leverage the tool to help you think about and get educated around cash, because it can make a really, really, really big business. So let’s switch from the generate profit Ideally generates cash, although not always. And then it shows up and sits on the balance sheet. And there’s you know, and that’s the piece that we’re going to dig into a bit here. And, you know, having a strong balance sheet allows you to enter the storms, and stay at a choice of how you run your business. If you screw up your balance sheet, and your banker starts to become your best friend, you don’t have a choice anymore. You can’t do the things you want in your business unless your banker friend says yes, it’s like they’re standing over in the corner, watching over your shoulder managing all of your decisions. And, you know, in many cases, you earn it, because you’re, you’re not in the most strong place to tell your banker to go take a hike. And, and, and, and sometimes they can be helpful. I’m not saying bankers are bad, bankers can be helpful, they can help you and support you in getting yourself back on track, they can be great partners. But the key is to have the balance sheet so that you can do the things that you want in 2021 and beyond.
Brad Giles 26:03
Yeah, so the first thing that we’ve got here is building the ability to scale up or down without big costs or contracts. So having a mindset to protect the balance sheet to strengthen the balance sheet, because of the volatile nature. So for example, can you hire people under contract, or part time contract, or contract labour rather than full time? Now, this doesn’t take away from the enduring concept that you’ve got to build a team of a players, we always know that. But can you scale quickly? Can you be more agile by not committing as much as quickly and really, the reason for this is so that if something happens, and things have happened, let’s be fair in 2020, we can then scale back down, we can then drop that those fixed expenses as quickly as we need to. So a bit more relevant heading into 2021 than normal. And it could be also around investment, it could be can you lease, rather than buy through higher purchase? Is it? Is it any other areas where you can have a more agile balance sheet that you can then scale it back quickly?
Kevin Lawrence 27:31
Yeah, I like that Brad. Agile balance sheet. And that’s the idea, not getting locked into a bunch of commitments where you have to have things go a certain way. Or if you do, just make sure that you have backup plans, and your plan, you know, ABC and you know, as Jim Collins would call it, you know, a healthy degree of productive paranoia. But there’s many times you can do deals or contracts on shorter terms, like, you know, one of our clients that had a big renewal on their office lease, they just did a one year extension. Now I think it costs them 20 or 30% extra. But for them, it was worth that 20 or 30% to defer a decision for a year because they didn’t know they had a couple floors in the downtown of the city they’re in they didn’t know and for that extra amount that it cost them it was worth it for them to basically buy the flexibility versus locking into another five or 10 year lease which they normally would have done in this case. So let’s go the second one so we’ve got the ability to the flexibility with your but what was the word you said with the balance sheet? You said add your balance sheet that’s remember that one Brad that’s that that would end up in the book agile balance sheet I like that So the next one is continue to build cash reserves. Collins will call them oxygen canisters some will call it war chest available credit or just a big freakin mountain of cash. But what is it you can do to build cash? Um, you know, going back a couple shows, I believe this is appropriately attribute it to Warren Buffett You know, when people are greedy be fearful when people are fearful be greedy. It’s kind of hard there’s right now there’s a lot of fear and there’s a lot of greed both in in in the marketplace. But you know, having after the boom times that we’re experiencing and I’m telling you like in our country there most industries not all many are having incredible booms clients have in record years, not counting the government’s bonus cash or surplus cash or stimulus cash stem is not super stimulus. But it’s, you know, what are you doing to build your buffer so that you are ready for opportunities, whether it’s buildings, businesses, people, whatever it is that can come up and ideally I’d recommend is setting your cash buffer target for 2021. I’m a I’ve always pushed clients to build balance sheet and to build cash. Because then you can pounce on opportunities when they come up and, and, and, and be ready to go. So now what’s if you just think to June, you know, whatever you’re at in terms of cash or whether you count it in days or dollars, what would you like that cash buffer to be? So that you’ve got all kinds of options, and it might be just a big dividend to the shareholders, which, you know, in great times is a great thing to do as well.
Brad Giles 30:32
There’s a lot of volatility out there. Look at the country level, I mean, certainly in Australia, we’ve got macroeconomic, I’m going to say trade tensions with major trading partners without digging into that at all. And I know that’s the same across many other countries. And, you know, with the swipe of a pin people can be significantly affected. So that’s one thing, we’ve got a global pandemic. Okay. That’s another, we’ve got a stock market in the US has been rallying effectively for 10 years. You know, like, we can reel off so many things that are challenging. And if you can take away the euphoria of the moment, if you’re doing well, because some people are not doing well. You know, cash can burn a hole in people’s pockets. And that is probably primarily potentially driven by emotion. So if we can take that away, given everything that we know, sit, use it, even if you have got a good cash buffer at the moment, where is it going to be by June? And we say June because it’s halfway through the year, right? And I say June intuitively, because that’s the end of the Australian financial year. So it kind of takes me to that as a milestone, but where will you be by June? Where do you want your cash reserves to be? And then holding the line on that, because of that cash buffer? You know, for so many people that I work with, that’s what gave them options in March and April. That’s what gave them the ability because we built it up over years. That’s what gave them the ability to, to stop to slow down and think when you panicking, you know, you can’t make rational, long term decisions. And that’s effectively what you get from a good decent cash buffet. So where is it going to be in June 2021 sitting amount, and then work towards that. And then maintain the discipline and the constraint. So then we move to number three, which is really coming from I guess, primarily, where are your contracts? This is within your balance sheet again, where are your contracts? Where is your debt, and we have an almost zero debt environment at the moment. So it could be the rent that you’re paying with your landlord, it could be the debt that you’ve got with your bank. What can you do in January 2021? To look at? How can you get better rates better terms? How can you get access to more capital, they will often wanting to do deals right now. So just looking at a list of all of your contracts? How can we improve them I mentioned to you earlier, Kevin, I remember, many, many years ago, maybe 10 or 15 years ago, we had a server that we were paying for. And in my company under a higher purchase to buy contract. So you pay for it, let’s say for I don’t know, 36 months or whatever. And then you own it. And my accountant at the time, didn’t have a registrar of when things were going to end. So we paid for that for nine months afterwards. Clearly, it costs and it burned me a little bit. I haven’t forgotten it. But we paid for it for about nine months afterwards when we shouldn’t have and so that’s what we’re really saying. That’s an extreme example, perhaps, but maybe there’s better interest rates, but uh, terms, you know, they’re saying in Australia at the moment, all you’ve got to do is ring up your bank and say, Can you give me a bit of right and they go? Yes. Okay. So yeah, just taking a moment to say how can we improve some of the terms that were the contracts that were in?
Kevin Lawrence 34:33
Yeah, and it’s taken the time to look at them. Obviously, the rates are at historical lows in many countries, most probably, I would imagine most, but I know in many countries, so there’s, there’s opportunities there. And you know, and I always remember a strategy, one of my clients had her own cash. They were brilliant client owned multiple companies. I remember one of the companies was wildly successful and making lots of cash and had lots of cash in the bank. And they were doing a new project. And they went and borrowed the money. And rates weren’t as good as they are today. And what they said is, look at the entity, we want to hold on to our cash. Cash gives us opportunities, it’s for them, it was opportunity money, because there are certain businesses they wanted to acquire, and having enough cash to do the deal tomorrow was a benefit to them. So they would have, you know, x 100 1000s, or millions of x millions of dollars in the bank. But then they would go borrow amount of that. So they always still had their cash to move quickly with, which was really interesting. And so everyone’s got their own strategies, leveraging, you know, the bank and leveraging other people’s cash is a great strategy for lots of business as long as you don’t do too much. But how do you do that most economically, you know, another one of our clients right now has been negotiating with their banks over the last while, and you just tell me the deal they got and they’re going to switch banks, not only are they getting better rates, which you could potentially negotiate with your existing bank, but they’re getting way more flexibility, they’re getting a bigger line of credit for operations. And they’re getting access to another pool of capital for acquisitions, because the company wants to continue to grow. So they’ve got themselves a great partner. And remember, the banks are always looking for people to lend money, that’s how they make money, right? That’s their economic model. And they’re always looking for new people, they’re always looking to expand their book of business. Now, depending on your industry segment, they might be more or less interested in you, but it’s a, it’s a great time to evaluate that some companies, you know, might take their extra cash and pay down their debt and just sit with a, you know, a, no debt on their balance sheet. And there’s lots of people who would argue against that, you know, but the point of it is, whatever is right for you, it’s time to look at it and put yourself in a better position. And ideally, you know, if you can, you know, get some cheaper cash, cheaper money.
Brad Giles 36:56
And so they’re the things that we’re saying, heading into 2021. Let’s do a super quick review. To begin this, these four episodes are born from our episode 31, which was one of the things that you need to do broadly, to build an enduring great company. And we built eight things out of that. So the first that we’ve got today, cash. So what do you need to do to have consistent profit generation and growth hitting into 2021 analyze all decisions based on impact to the bottom line number two, have investment criteria, build a list of three to five things that you can get your teams to compete against one another for capital on? Number three, analyze your cash conversion cycle with the four elements sales, make production, inventory, delivery, and billing and payments. And how can you reduce those days, then we move on to strengthening your balance sheet heading into 2021. So that you can endure the biggest storms and stay focused. So first of all, build the ability to scale up or down. So try to make your decisions based around the ability to cut off those costs very quickly if you need to build your cash reserves set amount of money that you want to have in the bank as cash reserves, June 2021. And then number three on the balance sheet is looking at your debt and looking at your contracts and your leases and all of those things and saying how can we improve these terms, if at all, and just taking a moment in January to look through those things. So that brings us to the end what a good chat we’ve had through these 4 episodes, good to dig in and hopefully provide some ideas for people to renew. Heading into 2021 different areas within their business. So thanks for listening everyone. This has been the growth whispers podcast, you know what I’m trying to say with Brad and Kevin. For the video version, you can go to YouTube, and search the growth whispers for me Brad, you can find me at evolution partners.com.au and for Kevin, you can find him at Lawrenceandco.com. Thanks everyone. Hope you have a great week. Thanks for listening and speak to you next week.
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