According to “Preparing for an Economic Storm,” a white paper released this summer by Deloitte, a leading professional services organization, many companies do not include performance metrics that look at cash flow in their management goals and incentives. Being “lazy” about these processes can mean missed opportunities during normal business cycles and can seriously threaten your business in the bad times.
In a downturn, Deloitte notes less demand causes most businesses to experience a combined cash and margin squeeze: inventory turns more slowly, causing a greater need for price reductions, which affects working capital and margin.
To help you avoid the cash and margin "squeeze," Deloitte suggests retailers:
- Reduce order-to-delivery times to reduce risk and capital exposure
- Reduce, defer or spread inventory commitments
- Create flexibility in your inventory and sales plan that will allow you to adjust
- Re-evaluate your capital expenditures to decide which will permanently improve your operating model and reduce your costs and which you may need to reconsider
- Examine all opportunities to improve cash flow, including looking at inventory and payables for cash flow improvement opportunities
Take The Tip:
“Preparing for an Economic Storm” includes thorough advice on customer behavior, business agility, cash flow, variable costs, profitability and more. Click here to download and read the complete white paper.
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