Around this same time, CD also began a closely related inhouse service bureau for computer-assisted design. Product, people, pricing, training, capital investment and a shift in channel strategy all underwent major changes in a short period of time. The cash-flow planning it took to make all this happen was particularly critical. The increased up-front cash demands for all the mix changes that CD was planning posed a huge potential conflict with ongoing financing needs for maintaining or increasing its historic 30% sales-growth rate.

Judy Nagengast credits cash-flow planning and careful trade-offs among sometimes conflicting goals as an important key to CD’s continued success. The company’s annual financial plan has as its centerpiece a cash-flow projection that is prepared by an ex-banker who helps the company articulate and quantify its options and trade-offs. He demonstrated that the company’s combination of rapid growth and mix-change plans threatened a cash drain. That risk and its likely impact on borrowing capacity had to be balanced against the additional debt needed to handle rapidly increasing capital-expenditure needs. Because the cash flow and strategic planning regarding these issues was done well in advance, the company was able to solve the problem, through a combination of very careful timing and presentation of a case that convinced lenders that a temporary spike in leverage would not significantly increase their risk of loss. A knowledgeable and deliberate plan, rather than a last-minute cash-flow panic, bolstered the firm’s reputation, reduced operating stresses and allowed management to focus on true management issues rather than putting out the cash-flow fires that are often unwittingly set by managers who don’t think in cash-driver terms.

Taken From : Cash Rules