"I've always been really curious about things and slightly confused by the world, and I think someone who feels that way is in a good position to be the one asking questions." Terri Gross
Put Your Resources Where They'll Do the Most Good.
Our CEO clients couldn't agree more!
A great question has two characteristics as it relates to business acumen:
- It's focused on the business
- It requires an answer
So, here they are. Four questions that our CEO clients want their leaders to ask.
1. Why does it take so long to get paid?
Cash is king. Cash is freedom to act. The speed at which a company can convert sales to cash is a critical indicator of overall success. If a company does not have the cash it needs, it has to get it, and these 'other' sources can be expensive.
A company will send an invoice to a customer and wait as long as 150 days for the invoice to be paid. Yes, it seems odd to say, but the longer it takes a customer to pay, the more pressure is put on the company's cash.
Don't be tempted to blame your customers for the delay, however. Shortening the contracted payment terms may not be the answer. The opportunities for improvement are in your internal invoicing processes. Can you confidently say that you get it right every time? Probably not. Work to answer this question candidly. Take steps to get paid faster. Your CEO will be delighted.
2. When we spend a dollar, when will we earn it back?
Managing a business is managing the circulation of capital. That circuit begins and ends with cash on hand. When a company commits to spend a dollar from cash, it's reasonable to expect that this commitment will earn MORE cash over time. Right? Right.
Too often, leaders make decisions to spend money without any expectation or discipline on how that money will be earned back. A client company purchased bulk raw materials (polymers) to earn a low price from the vendor. It was enough material to last 300 days of three shifts' production. Considering waste, rework, accounts payable days, and the like, that last dollar spent on excess inventory was not recovered for over 18 months after it was spent.
Of course, that purchasing leader was rewarded for 'saving' the company money with bulk purchasing. The CEO was not pleased.
3. What are our most profitable products and services?
The goal of any business, as Eli Goldratt pointed out, is to make as much money as possible for as long as possible. We won't stay in business for long if we continue to offer unprofitable products and services. That principle is sometimes lost on people. Your CEO wants you to know and act on this information.
Many companies track their new products launched and monitor the revenues from them. What portion of our total sales is from products recently launched? What can we do to accelerate and improve these efforts?
Sales = Price X Volume. So, if you want high sales, you can either have high prices with low volume, or low prices and high volume. Rare is the company that can have both high volume and high prices (but see Apple as an exception). So, if you are working with low profit per unit products, you'll need to get on board with higher volume. What can you do to sell more? If you're working with high profit per unit products, you'll need to work to maintain that value to customers. The CEO needs you to understand these differences and act on them.
4. What can be done to eliminate bad costs?
Bad costs are the "face palm" of the business world. A colleague of mine defines bad cost as "a dollar out and nothing back." We can quickly and easily name lots of bad costs around the company. These include wasted material, poor yield, aimless meetings, lack of timely decision making, etc.
Consider the relationship between cost and profits. One client of ours earned a penny of profit for every dollar of sales. That's a factor of 100. So, to earn another dollar in profits, they needed to sell the equivalent of 100 dollars of sales. It was much more effective for them to find that dollar of profits by eliminating bad costs as much as possible. Coupled with new product launches, increased sales volume, and innovative engineering, their leadership set their company on a the road to success.
Go ahead, ask these questions. You'll show your company that you are focused on results and that you're putting your business acumen to work. Your CEO will thank you.