Let's take a look at a financial perspective of business and examine where the money goes. A favorite saying of one of my mentors is "follow the piles of cash". Although this is not all there is to business, it is definitely something you can never lose sight of as a manager or business leader.
Cash flow is in a business goes something like this.
Our sales team is tasked with finding new customers, and helping them find the best solutions to their problems. They hit the road, they call, they advertise, they attend trade shows and conferences. They succeed in their objective. They find new customers. They help those customers reach a decision to purchase from our business. We pay the sales people's base salaries. The customer doesn’t pay anything yet. Our bank account goes down.
Our orders team is tasked with helping these new customers place their orders correctly to get what they really want. They take the order. They arrange payment. They tell the factory or service team to start work. We pay the orders teams' salaries. The customer doesn’t pay anything yet. Our bank account goes down.
Our delivery team is tasked with providing the product or service to the customer. They buy materials. They purchase additional labor. They put the solution together. They arrange shipment. We pay the project manager's salary. We pay the suppliers. We pay the assembly or delivery labor, we pay the shippers. The customer doesn’t pay anything yet. Our bank account goes down.
The shipment and the invoice arrive at the customer. The customer tries it out. If everything is in order he pays the bill. Our bank account goes up.
A few weeks go by and the customer has a problem or a question. He calls customer support and they help him use the product. The problem or question is resolved, and the customer is even more satisfied with his purchase, and our ability to support him in the future. We pay the customer service representatives' salaries. The customer doesn't pay anything. Our bank account goes down.
Now imagine you are the general manager of this business. What is the most important milestone in every order you take? It's when the satisfied customer pays the invoice. Everything else is a task on the way to this milestone.
Here's another way to look at it, when you go to work each day, what is the most important thing that happens? Your boss is satisfied with your work and pays your wages. Would it be okay with you if just once or twice they didn’t bother to pay you? Of course not! You work to earn money to live. The business also works to earn money to live. Every person in the organization is a link in the chain of events that leads to getting paid. If the business doesn't get paid regularly then you won’t get paid for long either.
The fundamental principle behind a financial cash flow perspective of daily operations is that every task is a link in the chain of events that leads to getting paid. When you talk to your accountant, your financial controller, or your operations manager this is the view of the business they have. It is a very important view if you like getting paid each month. This is not the only useful way of looking at business, but it's a very valuable perspective to understand.
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