aug blog blood

My son is currently enjoying work experience with the blood transfusion service. Each millilitre of blood donated is measured and treated as a precious contribution to someone’s long term health. Blood is a critical ingredient of a healthy body transferring energy around the body and increasing the supply where extra power is needed.

In business working capital replaces blood as the crucial ingredient necessary for the organisation to function. When cash flow dries up and working capital evaporates the company starts to die. Many managers only begin to measure this vital resource when it looks as if the company may need a transfusion.

Research shows that companies with easier access to cash are likely to invest more often in projects that do not necessarily increase profitability or cash flow.  The same research shows that in financially constrained businesses cash spending is actually associated with higher future profitability, increased efficiency or better cashflow. Simply put, companies invest more wisely when with the flow of cash is limited.

A crisis in the organisation’s lifeblood can lead to plant closures, employee redundancy and customer desertion. These are painful events to manage and can be avoided by making sure every penny / cent / rand is considered as a precious commodity, available to improve strength and wisely transfer the energy of investment power to where it is really needed.

Cash flow complacency must not be allowed in any business, at any time.  The role of the leader is to ensure that the ‘blood’ pumps round the organisation efficiently and effectively.  This means investing wisely to increase profitability, recognising and rejecting vanity projects and maintaining a sense of urgency. A culture where every member of the team positively cares about collective success, understands their impact on working capital and cares for every drop of investment distinguishes the healthy organisation from the sick company.