EP# 115 What is Your Cash Flow Story? - Alan Miltz (Entrepreneur, Financial Guru)

Alan Miltz’s 20+ years of executive background ranges from founding director of Inmatrix Pty Ltd through to most recently, director of Pearl Finance Australia. Alan has extensive experience across all major finance fields, including financial analysis and debt finance boosting, and spends a large amount of time helping entrepreneurs handle their banking relationships, cash flow analysis, and other financial matters. His Paper Napkin Wisdom reflects this level of expertise: “Revenue is vanity. Profit is sanity. Cash is king.”

In Alan's experience, most entrepreneurs and CEOs only want to talk about revenue, margins, profit, etc. Profit, as Alan puts it, is an opinion - you can manipulate it to any degree necessary to fit your message. Here's another way of thinking about the relationship between profitability and cash flow: businesses speak Spanish, but banks speak Portuguese. A competent business owner must be fluent in both because banks talk about cash flow as an ability to service your debt. 

There are four facets or chapters of almost every business, especially those of an entrepreneurial nature. The first chapter is that which every entrepreneur is already well-versed: profitability. Business owners understand chapter one well because it is reflected in revenue growth, margins, EBIT, and other familiar metrics. Chapter two - your working capital cycle - is also reasonably well understood by most entrepreneurs. This includes receivables and debtors, collections, inventory management, speed of bill for services, supplier payment.

Chapter three is defined by what you do with your business after the considerations of chapters one and two: infrastructure or other capital investments. How are you handling your cash flow and what are you doing with it? This, in combination with the first two chapters, is also how chapter four is defined: your cash flow. In Alan's experience, about 60% of companies are profitable but have very tight cash flow - this ultimately harms growth. After considering these four facets or chapters of your business, you must ask yourself: "do I have enough cash flow to finance my growth?"

Regardless of the answer to that question, you can rest assured that your cash flow will be defined by what Alan calls "the power of one", or a 1% positive change in one of seven levers that any CEO can pull at any time. Price, volume, cost of goods, overhead, payables, receivables, and inventory are your seven levers; the most successful entrepreneurs understand these seven levers - and when to pull them - in order to drive growth.

Alan's background means that business owners come to him when they have trouble working with their bank(s). His expertise tells him that when a bank puts pressure on you, it doesn’t mean they don’t understand your business. It means you have a cash flow problem that must be fixed through the power of one. Put another way, the power of one is a summary of strategic plan - price/volume = marketing, cost of goods = operations, overhead = everyone, collections = finance/sales, inventory = operations. Everyone in your business must understand how they impact cash and ultimately, behavior will change in a positive way when company culture embraces this philosophy.