Jay Goltz wrote an interesting blog post on 5/25/11 for the Small Business Section of the New York Times, entitled Not All Fixed Costs Are Truly Fixed. You can read the post here.
The premise of the article is that besides focusing on sales and margin as the only generators of profit for your business, you should remember to focus on expenses as well. Jay describes his own experience with light bulbs (a big deal for him), telephone systems, and real estate.
Companies who are running on EOS have a great tool to help work on that premise.
It’s called the Eight Cash Flow Drivers.
It works like this.
The leadership team brainstorms on all the parts of the business that affect cash flow. What drives profits up and/or what drives expenses down. They all should be measurable.
The big next step is to agree on which leadership team member is accountable for each cash flow driver and to assign a goal.
Management of these numbers is done one of three ways: through the monthly or quarterly budget; through the monthly or quarterly P&L statement; and finally, some of these numbers go into the executive level scorecard, which is monitored weekly.
Like all the EOS tools, its simple. It just takes discipline to stick with it to make it pay off.
You can download some free templates to help you and your leadership team work on your cash flow drivers here.
