In this video, I discuss what it means to have a strong cash culture and how to build one for your business.
How does a cash excellence culture look like?
Based on a model developed by McKinsey, a business with a strong cash culture will exhibit the following attributes
- People have the right mindset and attitude towards cash.
- While the top sets the tone, everyone works to build and nurture a strong cash mindset across the organisation.
- People know what to do because the decision structure and processes are clear.
What this means is that an organisation with a strong cash culture works on building and maintaining a solid financial position. Each attribute that McKinsey identified maps out what a business needs to develop and nurture a strong cash culture.
In an organisation with a strong cash culture, everyone understands the importance of cash
This means having the right mindset about cash. It means understanding that cash reserves provide businesses stability and offers opportunities for future growth by providing capital for investment.
However, this is easier said than done. In a survey conducted by EY, almost half of respondents claim that it is challenging to establish a comprehensive financial culture is because of the lack of understanding and connection between business functions and cash impact. For example, how can someone accountable for a restaurant’s cleanliness or someone who maintains the schedules for field managers understands how they impact their company’s cash flow?
How can managers develop the right mindset and attitude towards cash in their team?
Here’s how Johnson Controls (JCI), a multinational HVAC systems manufacturer based in Ireland, did it. They created a cash leadership office, which managed the cash initiatives and integrated efforts across its organisation. In its initial stages, the office focused on nurturing a solid cash mindset among operational leaders and expanding this mindset down to the ranks. It launched a simple but effective cash culture mantra: “Every time you make a decision, how does this decision impact cash?”
The result? JCI has sustainably improved liquidity and cash management practices across its organisation. What this example proves is the second attribute of a strong cash culture.
It starts from the top, but nurturing a strong cash culture is everyone’s responsibility.
It begins with leaders setting the tone by making cash a top priority. While top leaders hold themselves accountable for cash targets, they also have everyone in the team responsible for their decisions and how these decisions impact their cash position. Everyone also understands, accepts, and behaves in a way that affirms that cash management is EVERYONE’S responsibility. Everybody has a role to play, and everyone understands that their roles affect a company’s cash position.
But there are some misconceptions about roles that keep team members from fully supporting a strong cash culture. How can members of the entire organisation contribute to a strong cash culture?
For example, your sales and accounts payables teams play a significant role in your cash flow and revenue side of things. However, there is a lot more that they can do than their obvious roles.
The sales team’s contribution to a company’s cash position goes beyond making a sale. They also have a role to play in ensuring that customers pay consistently and in assisting the accounts payable team.
- First, by vetting customers and ensuring that they are good-paying customers in the long term.
- Second, by reminding customers about their payment deadlines. The sales and accounts payable teams can work together to develop a payment reminder process and support system that is easy to implement and does not take away from the sales team’s primary role of pushing products and services. The accounts payable team can support the sales team by developing a payment process that makes it easy for customers to pay. Customers are more likely to pay when the process is as easy as possible.
Here’s another example—on the expenditures side, let’s talk about your operations and management team and what they can do to support your cash position. Any operation activity has a cost equivalent—and any unexpected activity or delays may lead to unplanned costs. While unplanned expenses are often accounted for in financial estimates, the role of the operations and management team is to keep them within those boundaries.
It’s the operations’ role to ensure that all equipment and machines are fully maintained. This means reporting any need for repairs, no matter how minor, so as not to cause equipment breakdowns that results in unplanned expenses and disruptions in production. This also means working closely with supplier sourcing and management teams to find suppliers who provide value—they may not necessarily be the cheapest, but they need to be reputable, reliable and provide excellent after-market support.
The operations team should also work carefully with the marketing and sales team, particularly in planning sales promotions and product launches, to ensure that all expenditures are planned, and projects are executed within the timeframe.
Every person in the organisation and their individual and collective actions affect the business’s financial position. A strong cash culture is one where everyone understands and behaves with this mindset, which leads us to the last attribute:
People know what to do because the decision structure and processes are clear
In organisations with a strong cash culture, people understand and perform their roles considering how they impact the business’s financial position. The organisation empowers them through well-designed policies and transparent decision structures.
For example, if you want your sales team and your accounts payable team to work together, then your organisation should provide a structure or platform to allow that. Do your sales and accounts payables team have close communication? Do they meet regularly? Do they have a payment reminder protocol that involves the sales side of the team? Is there a system in place that supports their working together?
Once you change your people’s mindsets and educate them about their roles, it is important to support your team through policies, protocols, and structures that will allow them to perform their roles and contribute to the business’s overall financial position.
Building and nurturing a strong cash culture means that business owners have the responsibility of
- Nurturing the right mindset and attitude towards cash.
- Setting the tone for everyone in the team.
- Ensuring that people know what to do by creating transparent decision structures and clear processes.