In today’s economic and business environment, cash is king. The critical importance of cash in businesses continues to rise. One just has to read the news to see cash highlighted on a daily basis in relation to several high profile companies – GM, Chrysler, MGM Mirage, GE Capital etc.

In businesses, there are a three ways to affect cash – earnings from operations, working capital (inventory, receivables), and the sale of assets. Last month, we addressed inventory – how else to manage cash?

First, take a step back and think about the big picture – how can you reduce your breakeven point for cash? Re-evaluate your core decisions to ensure they still make sense. Discontinue a marginal-profit product line. Stop selling to a customer which ties up more than its fair share of cash for extended periods of time. Re-evaluate markets and distribution channels. Re-evaluate your plant and distribution network. The key with each of these is to make sure not to panic; instead, prioritize based on your company strategy and critical success factors – what impact does each of these have on your strategy and critical success factors?

Second, evaluate each of the ways to affect cash. When reviewing earnings from operations, do not focus solely on what you’ve likely been focused on the last several years, growth and margin. Instead, re-evaluate with an eye to cash. When reviewing your customer base, which customers tie up significant amounts of cash? For what periods of time? Is there a way to change the amount of cash tied up with customers? For example, I’ve partnered with customers to develop win-win programs such as vendor managed inventory and transportation partnership programs that increased cash while reducing costs and improving customer service. Also related to generating earnings from operations, the traditional but often overlooked “increase revenue, reduce costs” achieves the goal. Note that I did not say solely to reduce costs – in my experience, many times, when the organization is already focused on continuous improvement/ lean thinking, costs are already low (and/or continually improved); therefore, the largest impact can be found by re-focusing priorities and concentrating on increasing revenues. At times, it even makes sense to do the unthinkable and raise prices. Just remember to consider customer value in decision-making.

Next, when reviewing projects, instead of focusing solely on return on investment, it is also critical to consider the cash which will be consumed and the timing of the return on investment vs. cash projection needs. For example, even if a project has a good payback in regular times, it might not make sense to move forward in the current economic timeframe if it will require significant cash outlay upfront. However, it is critical not to panic, and it’s certainly not the time to stop investing. In a similar vein, according to a McGraw Hill research study about the 1981-82 recession, those companies that invested in advertising during the recession performed over 14 times better than those that cut advertising.

Third, remember your customers and suppliers. Do you know their financial conditions and cash positions? Especially in today’s integrated supply chain, these considerations can have a profound effect on your business. Think about them proactively.

Fourth, during times of economic uncertainty, monitoring cash metrics on a frequent basis is critical. (And, as an aside, why stop even when it turns around?) Your quick ratio is critical, as it measures short term liquidity, and cash projections are cornerstone. Since cash metrics will rise in importance during this timeframe, why not take it a step further and provide training and education to your workforce on cash flow/ metrics? When people understand what is important, how they can contribute to the goal, and how it is measured, amazing results follow.