Goodbye Cheap Cost of Capital, Hello Free Cash Flow

  • Accounts payable and receivable terms — work with vendors and customers to renegotiate terms. Extend terms with vendors and reduce with customers even if this means offering a discount or paying more. With high inflation, it is essential to minimize net working capital needs. Working capital equates to current liabilities minus current assets. If the balance is out of whack, generous customer terms can eat cash.
  • Create a money map of all cash expenditures over the last 12 months. Rank according to the total expense and categorize whether the outlay was critical or non-critical to operating the business. Then pause or stop non-critical costs and contracts. Negotiate with the most prominent vendors; even small reductions or improvements add up.
  • Reduce or delay capital expenditures except for necessary investments that reduce operating costs in the next 12 months. Prioritize short-term break-even investments.
  • A shift from fixed cost operating strategies to variable costs wherever possible will allow the organization to better flex based on the performance of the business. It may seem counter-intuitive, but contractors can fill resource gaps as a variable cost.
  • Look for areas to automate using RPA, but negotiate performance-based payment models. For example, if the RPA team saves the company $100K, it is paid a percentage of the saving versus the upfront service cost.
  • There is a cost to everything you are doing, do less. For example, if you have eight strategic initiatives, reduce them to four. Eliminate waste in the organization.
  • Anything lavish, company events, conventions, travel, leases, furniture, and dinners must be reduced or eliminated.
  • Cost reduction directives, employee right-sizing, and price improvements are pragmatic levers to generate more cash.
  • Secure a revolving line of credit, even if expensive that can act as insurance during challenging periods. In addition, access to cash can help with working capital.

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Jason Linkswiler

Jason Linkswiler

I’m a consultant living the best life I can while trying to be a great father and husband.