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Your Post-COVID Mantra. ‘Cash is Queen’.

One thing every owner and manager of every recruitment company has learned (or re-learned recently) is this;

 ‘Cash is Queen’.

I know of several recruitment companies that have gone into liquidation, have read of dozens more, and there are no doubt hundreds, maybe thousands across the world who suffered a similar fate. More will follow them, I am sad to surmise.

They just run out of cash.

Even though in many cases the business had been operating many years, often have a good-looking P & L, and even a balance sheet that on paper looks ‘OK’.

The crisis we are going through has been indiscriminate. Good businesses have suffered, but poorly managed business have been decimated.

And the reasons were evident a long time before COVID!

I speak to a lot of business owners and managers. I do it for a living. And I do it as a hobby. And I do it just to help. Some are green, some very experienced. And I find that many simply do not understand the exact financial position of their business. You might be shocked to hear it. Not now. And not before, in good times.

Some just don’t ensure accurate, timely financial reporting. I mean no P&L for months! Many others clearly do not understand the numbers put in front of them. Really. Even the difference between ‘Revenue‘ and ‘Gross Profit‘ eludes them. And plenty of others get lots of information but focus on entirely the wrong data when they do look at it.

I am not demeaning here. It took me years to fully grasp financial management, and I am only mildly proficient now. And I know that many people who rise to management roles have little or no financial training.

But if you manage or run a business, let me give you the word. You need to understand the numbers. And it’s more than just being able to read a P&L. You must not allow yourself to get seduced by numbers you see on a spreadsheet either.
Remember. It’s not numbers, percentages or ratios you put in the bank.

It is dollars.

And so for years, I found myself cautioning disbelieving owners, celebrating a massive temporary PSA win for example, (PSL in the UK) that they need to reject the contract. “But it’s worth nearly a million dollars!” they cry. “We have to do it!”

No, you don’t actually.

In fact, you must not take it on at margins and payment terms that will cripple you. “But this will grow our sales by 25%” they wail. “And what we lose on margin, we will make up on volume”. Oh, dear. What a seductive, but fallacious argument. If you are losing money on a transaction, higher volumes of that transaction just mean you will lose more money, more quickly. I have seen it countless times. Usually, the cash flow implications will do the damage before the shitty margins get you.

And this COVID-generated downturn has very sadly turned many of my predictions into reality.

Up till four months ago, I found myself interrupting a self-satisfied Board meeting, where we are studying a gorgeous set of P&Ls, which show juicy profits. And then I go and spoil it all by asking for a balance sheet, a debtors aging report and a cash flow report. What a buzz-kill!

Smiles fade as we realise the ‘massive profit’ does not correlate with an almost empty bank account, and massive creditors list to pay. (Often owing money to the government, an institution not known for patience or forgiveness in any country I have worked) Why? Because we are not collecting our debts in a timely way. Or we have not accounted for GST, BAS, Group Tax, superannuation, or some other statutory payment, which looms like a massive iceberg that many a recruitment titanic has failed to see.

And so when a recession came, it was inevitable.

A sale is not a sale till the money is in your bank.

Please read that again. That means many things, including only doing business with people who can and will pay. It involves collecting your debts in 30 days maximin, and It means making sure you have the financial backing to grow (especially a temp/contractor business, where ironically fast growth combined with slow collection can send you bust.) Talk to the guys at APositive for financing ideas

Look at it like this. As we recover from COVID, build a business with a resilient financial structure, and a discipline which always looks at the cash implications of every deal, and every decision.

Revenue is only the bluntest of instruments when it comes to measuring business health. All revenue is not equal. We have to look at both margin and the cost of generating that revenue. So while obviously important to grow customers and sales, chasing revenue at the cost of all else is vanity and a potentially fatal blunder. I know companies with $50 Million in sales, who at the same time carry $5 Million in debt and make annual profits of $100k. I also know businesses with total revenue of $10 Million who are debt-free, have $2 Million in the bank and make almost $2 Million EBIT per annum. Which owner do you think sleeps better? Especially when COVID raised its Butt-Ugly head?

Profit is a far more reliable indicator of business robustness, but profit on a P&L can be misleading too! A rigorous P&L will give you a snapshot of your business performance over a set period of time, and it will tell you whether your business model is working. But ‘profit’, on a P&L, is still a mirage. It’s a fairy tale. It’s not real. Yet. You can’t pay next week wages with a set of financial statements, no matter what those statements say.

You need cash. Cash is the love of your life. Wad is God. Your one true friend. The one you can trust. Not everyone agrees by the way. I have been lectured by countless ‘high-flyers’, much, much brighter than me, who tell me debt is good, using other people’s money is smart, and cash in the bank is lazy money. Most of them are bankrupt now. (Literally)

Cash is reality. Make sure every ‘deal’ you plan to do, every new strategy, every new hire, is only ever agreed to, once you know the cash implications.

Most business meetings focus on revenue and paper profit. Yes, important, but always ask these three questions;

• How much cash do we have in the bank?
• What are our debtors and what are our liabilities?
• What is the cash flow projection of this initiative?

Cash is like oxygen. It’s not what we live for, but if it runs out, you are sure as hell going to notice. Like so many have in the past four months.

Revenue is vanity. Profit is sanity. Cash is reality.

We talk about this and much more in my new Webcast. THRIVE

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*************************************************************************************************************************************************

  • Posted by Greg Savage
  • On July 30, 2020
  • 11 Comments
Tags: Coaching recruiters, financial management, recruitment

11 Comments

Paul Hamilton
  • Jul 30 2020
  • Reply
Great article Greg and never truer words spoken. A poignant reality check for all Recruitment Consultancy owners and managers. Thanks for sharing.
    Greg Savage
    • Jul 30 2020
    • Reply
    Thanks very much Paul, hope all well with you
Richard Coomber
  • Jul 30 2020
  • Reply
Excellent article thanks Greg. A timely reminder too that excessive fee discounting is just a race to the bottom.
Evelyn Woods
  • Jul 30 2020
  • Reply
Fabulous article Greg, should be the bible for our industry. It is honest advice that some of our industry does not want to or won't hear. Cash really is the King and the Queen of your business. It's not about numbers on a spread sheet, it's about $$$$$$'s in your bank account and the ability to pay your bills plus a separate account for unexpected surprises. We have all had to learn at some stage in our career, that you need to know when to walk away from certain business deals if the profit is too low, or not there at all.
bede ashby
  • Jul 30 2020
  • Reply
Cash is GOD! Everyday at the moment I assess my obligations to pay out my creditors including the IRD and my cash in the bank coupled with forecasting sales and therefore cash in. If the numbers don't stack then I change it NOW so that it will always be more cash in bank than cash owed. It's the only way to manage through a financial crisis.
Luke
  • Jul 30 2020
  • Reply
Sobering words Greg.. I've personally had my head in the sand when it comes to basic financial management, tending to focus on sales generation only, with the irrational mindset that if I'm making sales the balance sheet will take care of itself.
    Greg Savage
    • Jul 30 2020
    • Reply
    It's a common mistake Luke and one you can fix by focussing on the items in that article... in times like this it can be fatal however
Andrew Brindley
  • Jul 30 2020
  • Reply
Great article Greg we discussed this on our daily DDM (our Accounts manager brought it up as it was in their area of expertise she's in her seventies but is still learning and reads your blog every week!). We have used your blogs to motivate us through these difficult and challenging times, we have updated our systems and processes throughout this period pushing harder than we have ever done before to ensure we are match fit for when things pick up. Your words of wisdom have helped us drive on through these moments in time not allowing ourselves wallow in the set backs. We have changed our accounts system to Xero, got some automated credit control software in chaser, started using to-do and planner in 365 and this week we are looking at new payroll systems. On top of that we have ditched Target Recruit in Salesforce and built custom objects to replace with a custom made part of Salesforce to ensure it works better for us and will make us much more efficient. We are moving to a paperless office and are in the middle of scanning in our legacy data (there's a lot as we are in Social care) so we become a paperless office, and then after that we are going to become a officeless office and work to a working from home hybrid model full time later this year. All things done while we driving our business development, trying to build stronger relationships with our customers and temps. We have a long way to go but your article struck a cord with us as we have always followed your mantra "cash is queen" and have avoided those shitty contracts that pay crap margins, I've been the one that has pulled the plug on what others thought ok because it just didn't make sense. We are not perfect and we still make mistakes but we are trying to learn from those and move forward one inch at a time! Thanks for sharing this.
    Greg Savage
    • Jul 30 2020
    • Reply
    Outstanding work! Well done Andrew and the team!
Navid
  • Jul 30 2020
  • Reply
Hi Greg, I still remember one advise you gave me back in 2009 when we met at your office in Sydney. I think you were running Firebrand and we had just launched our company. I came and met you seeking words of wisdom :) That advise was, more or less, chase up your invoices vigorously. I took that onboard. 2009 as I remember it wasnt all that different from whats happening in terms of recruitment. It was interesting that you said it back then and you are kind of repeating it now. Great article today. One method I have used to keep a close eye on our finances is I have always attempted to forecast our monthly gross profit. I have also made sure we have made our monthly costs as predictable as possible. I think these two measures have simplified the premise of liquidity in our business on a regular basis. Its not a perfect method and lots of what you say rings true but perhaps its a good start to keep things measured and knowing whats going on
Andrew Brindley
  • Jul 30 2020
  • Reply
Thanks Greg its been a massive team effort we will keep you posted on progress!

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Greg is the founder of leading recruitment companies Firebrand Talent Search, People2People and Recruitment Solutions, and a current shareholder and director of several others, including Consult Recruitment. He is a regular keynote speaker worldwide and provides specialised advice for Recruitment, Professional Services & Social Media companies.





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