The Most Most Important Report

Several years ago I interviewed for the position of CEO of an international manufacturing firm. This firm had just come out of bankruptcy -- manufacturing and a turnaround, a perfect combination for me.

I was asked "which chart or report would you say is the most important one for the CEO to focus on?" Even before answering, I knew right then I probably wouldn't get the job.

Cash. The most important report is a daily cash report. This is certainly true for a turnaround company, and likely true for any company that wants to avoid becoming a turnaround company. How much cash and debt does the company have? Is this getting better or worse? Is it following plan? Are my people educated in understanding what makes this move? Do they understand how their actions every day will effect this report?

Very few people will understand this until they live it. They will instead say...on time deliveries, quality performance, inventory turns, new orders, etc. All of these are important. However, unless actions taken in these various disciplines result in improving cash, are the managers really taking the best action?

Publish the report daily. Distribute it widely. Everyone with the authority for expenditures and commitments of company resources should see it and understand it. They should learn how their actions every day will impact this chart.

Make it a discipline to forecast cash. Ensure that all organizations that have authority to commit and spend resources take ownership of their part of the forecast. Drive the forecast to a daily forecast in the near term.

There are many objections to these ideas. It is best that you break free of these.

For example:

1) This is a very short sighted view -- how would you ever invest? If the only focus is cash, the company will make very short term investment and spending decisions.

Nothing is written that says that the numbers could only go one way. If the company has plans to make investments, the numbers could go the "wrong" way for a time. However, such investments come with forecasts and eventually these forecasts must turn positive, else why invest?

2) This is a job for Treasury. Our sales people, purchasing managers, plant managers, etc., have other things to worry about besides cash and forecasting cash.

It is a fallacy that Treasury controls cash (like it is a fallacy that controllers "control" spending or anything else, but a topic for another day) Rest assured they will worry about those things anyway -- it is what they do, it is in their blood. Cash is the lifeblood of the organization. In the end, with it you have every option available to you, without it you have none. Knowing in advance where you are headed with cash allows for planning that most organizations do not consider. And training all management to understand their impact on this inherently makes better the chances that the company will avoid liquidity and funding problems in the future. What is wrong with having a company full of complete businessmen and businesswomen?

3) We can't share this widely, it is a company secret.

You trust your management with the very existence of the organization -- every day they take actions that bind the company. But somehow they cannot be trusted with this information? How will people work on something if they don't have information about what they are working on? Train them educate them -- their increase in knowledge on this subject will only strengthen the organization's financial condition.

In every instance where I have come into a troubled company -- and the many where we have conducted due diligence but not taken the deal -- among a few others, there was this consistent theme: only someone in finance knew this stuff...maybe. In fact, the most engaged didn't even track cash and debt, only availability. Tracking availability is for the dying company and is understandable in bankrupt companies. But when asked if they tracked cash or debt before they knew they were in trouble, the answer invariably was no.

Cash forces management to look not just at some form of earnings (with all of the inherent "bookkeeping" problems in this measure) but also the balance sheet. Many companies lose track of the balance sheet because they are only focused on operating earnings or some other earnings measure.

Have no fear, plant managers will still deliver parts, sales people will book new orders, engineers will still develop new product -- and these can still be measured. In the meantime, training them on cash, and instilling the daily discipline of focus, will ensure that you have countless cohorts watching the financial condition of your firm.

Regarding the job interview I referenced at the beginning of this post: I didn't get the job. I don't know why, but I know they didn't like the answer about the most important report.

And the company went back into bankruptcy two years later.