Independence or Interdependence, Part 2

by | Oct 11, 2022

In my previous article I looked at the definitions of independence and interdependence and explored the importance of interdependence when it comes to teamwork.

But how about cash flow? Surely when you optimise one area, the other areas that are interdependent will also benefit?…

When an area is underperforming or you are considering enhancing an area within your cash flow cycle, you tend to focus your analysis, research, development, and methodology on that specific area.

Cashflow

I have seen many times where entrepreneurs, CEO’s, CFO’s, accountants, consultants, engineers, etc. start to optimise one area of their cash flow cycle to the full, but they do not consider the impact that these changes may have on the rest of the cash flow cycle.

One example that comes to mind is where an organisation employed a so called “specialist consultant” to review their foreign currency risk management policy. The policy was reviewed and adjusted to optimise the foreign currency result but ended up costing the client a lot more in facility fees and interest as they needed more cash to enhance the foreign currency result. In the end the cost of funding, together with the fact that the policy was written to only optimise the result and not protect the organisation against downside risks, cost the business a lot more over time. We were able to redesign the foreign currency risk management policy to align with the business’s operating cycle, reduce the cost of additional funding to Zero and optimise the foreign currency result.

At Wauko our approach is to gain an in depth understanding of the business, its strategy, how it applies its strategy in its supply and value chains, its finance function and treasury cycle. When we have this understanding, you gain insights into your processes, risks and key drivers that can assist you in growing your business, while it assists us in identifying the key cash flow drivers of your business.

We see every day that financial managers, CFO’s, Financial Directors, etc. focus most of their time and attention on the income statement and cost savings, while cash flows and cash flow reporting plays second fiddle. When you start to change this around in a business, by focussing your reporting (and yes, also in the boardroom) on the cash flow drivers of the business, suddenly a whole new world of excitement and opportunities presents itself. We believe income statement reporting for decision making purposes is dead and should be replaced by cash flow driver reporting; and yes, these drivers should still be measured against a budget, but even more importantly against a benchmark (sometimes a more long-term goal and other times a market related benchmark).

Once the key cash flow drivers of the business have been identified, what areas need to be focussed on to build a holistic and robust cash flow cycle that not only supports the business, but helps it grow and optimise the return on investment? I list them alphabetically as we believe that each of these areas are of equal importance and require specialist attention and skills:

  • Cash
  • Compliance
  • Financial Management
  • Foreign Exchange Management
  • Performance Management
  • Treasury Management (managing the flow of cash and commodities in the business)

Every organisation needs the tools to optimise their cash flow – wauko engages with its clients to gain a full understanding of their business, their cash flow cycle, and their cash flow solutions. This approach allows us to shorten their cash flow cycle and make it more productive by implementing tailor-made policies and processes that align with the key business drivers.

Are you ready to optimise your cash flow cycle! Embrace your interdependence and allow other people to make you stronger and your business more sustainable.

Whether you have an established business or have a dream to create one, let our team at wauko assist you to make your dreams a reality.

Contact Dale Petersen on 021 819 7802 or at dpetersen@wauko.com to discuss your specific business requirements and let us help you optimise your cash flow cycle. 

2 Comments

  1. LUKAS SNETLER

    EXCELLENT READING, WELL DONE PIETER

    Reply
  2. Lukas Snetler

    Excellent, well said Pieter

    Reply

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