A summary message from Alan about the Berlin session so that you can repeat-repeat-repeat…


After spending over 20 years advising Banks, Business and Accountants around the world, I have come to the realization that very few companies can bring the numbers to life. I have dedicated my working career to make Business Simple.  Simon Sinek eloquently describes the importance to enunciate your business Purpose, mine is “Making Business Simple”. All my financial techniques are designed with the key focus on simplicity. If we apply this to your company’s numbers, it will be told over 4 Chapters i.e.

Chapter 1 – Profitability

Chapter 2 – Working Capital (i.e. Accounts Receivables, Inventory/Work-In-Progress, Accounts Payables)

Chapter 3 – Other Capital (This is the rest of the Balance Sheet and the main item is normally Fixed Assets)

Chapter 4 – Funding (The result of the business is Funding – You cannot read Chapter 1 Profit and expect to understand Chapter 4 Cash Flow)

It is common for business owners to lament to me that they don’t comprehend why their company is making good profit and yet doesn’t reflect in the bank balance. My advice to them would be for them to understand the 4 chapters of the cash flow story. Recognizing all 4 chapters of your company’s cash flow will allow you to reconcile to its profit as illustrated below:

How can your management team improve Profit, Cash and Business Value

Your management team needs to have a very sound understanding of Chapter 1 Profit and Chapter 2 Working Capital

There are 7 key levers that your management team can manage to improve Profit, Cash and Value.

Chapter 1 Profit  Levers (Measured as a % )

  1. Price
  2. Volume
  3. Cost of Goods or Direct Costs
  4. Overheads

Chapter 2 Levers (Measured in Days)

  • Accounts Receivable Days
  • Inventory Days
  • Accounts Payable Days

As a leader you should ask yourself “How many 1%- or 1-Day changes should your company make to achieve your desired results?”. The small incremental improvements are the secret to “extract” the cash and value hidden in these 7 levers.

The Power of One

The Power of One is the code of company. Every company will have their own unique code to turbo charge your financial result. Therefore, sitting on the desk of every management team should be the Power of One scoreboard of your company. As a business leader, you need to have a quarterly Power of One discussion in your board/management meetings. Your Power of One scoreboard would look like below:

Understanding your Bank

After 20 years of dealing with Banks I can say that we Business speak Spanish and the Banks speaks Portuguese.

Business talks about Profit and the Banks looks at the Cash Flow as measured by your Capacity to repay.

You cannot understand the bank by looking at the profit of your company. Instead, you need to have a complete assessment on the 4 Chapters of your business. Chapter 4 Funding is the result of Chapter 1,2, and 3. A quick way to calculate the Cash Flow of your Company is the movements in ALL your bank accounts i.e. Cash at Bank and all Short- and Long-Term Debt.

Profit is not the primary indicator for a bank to assess a business. Instead, a bank will look at the net cash flow (as illustrated above) and other factors such as:

  • Management – best assessed by past financial performance and forecast accuracy
  • Debt Service Ability – does the business meet servicing ratios required by each bank
  • Security – If the business defaults on its obligations is the lender exposed to possible loss after it exercises its rights under the security agreements


I believe that “Revenue is Vanity, Profit is Sanity, but Cash is King”, the importance of cash flow can never be understated in a business. In the midst of busyness of running your company, you should have a holistic understanding on the 4 Chapters so that the fruits of your labor are safeguarded, enhanced and ultimately get the valuation that you rightly deserved.

Thank you Alan for this insightful, eye-opener session, some excellent food for thought for our ALTO leaders! Please log in to the members’ area to download Alan’s presentation slides and stay in touch with his work via http://www.alanmiltz.com/

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