Written by: Nil Akan Palacios, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Over 10 years ago, I started business coaching a company that was techically bankrupt. The executive board of the company hired me to fix their never-ending business issues. Problems with distributors, missing sales and profit targets for 4 years in a row, high turnover in management team, issues with authorities in many areas.
To me, it was pretty easy to see why they were bankrupt.
They were bankrupt because they were not making the right decisions for the business from a cash standpoint (financial literacy) and from leadership standpoint (emotional literacy).
They had little to none awareness around what was wrong, despite that hey had big diplomas and big business experiences behind.
Instead of finding a solution for the bankruptcy, they were constantly blaming each other and external circumstances.
I clearly recall that the accountant was picking his hair in tears!
In a super-competitive market, they were constantly losing market share to competition.
Talking to the team, I noticed that the root cause of this gigantic failure was obvious to everyone in the company, like the elephant in the room, but nobody was willing to touch the elephant, worrying that it’d bite them.
The issue was that the management team had neither the financial literacy nor the emotional literacy to lead this company.
Financial literacy is the understanding of how a business idea is turned into a product and then into cash in the bank account. In other words, financial literacy is how to commercialize a business idea.
The management team was very much focused on small tactics to meet monthly sales target while they were not aware that the boat was already sinking. The boat was sinking because they were not in control of their business. Distributors, external factors and sometimes even suppliers were controlling the company.
Missing the sales targets month over month was making the management team feel really nervous. Instead of trying to take control of the cash flow, they got carried away with their anxiety and started panicing.
By the time I started coaching this company, panic was already quite high because the headquarters announced that they’d come and audit this operation to understand what was going wrong and why the company was burning that much cash.
When the management team heard the audit announcement, they knew that if they did not straighten this business, they’d be out of the door by the time auditors were leaving the premises.
At that point, panic reached the peak.
One of my strenths is to be able to operate in chaotic environments rather comfortably. In fact, I Iike managing chaos, I find it fun. As there is only one algorhythm that brings cash to any company, I was clear what needed to be done, technically. My challenge was to lead the management team to that direction. And here is where the fun kicks in!
First, I started interviewing the teams. They were very knowledgeable about the cash flow situation of the company and what was going wrong. And yet they were not able to share this openly with the management team as they were afraid to lose their job.
Then I started working with the management team members.
Head of Marketing was concerned about marketing only.
Head of Sales was concerned about sales only.
Head of HR was concerned about HR only.
Head of Supply Chain was concerned about Supply Chain only.
Head of IT was concerned about IT only.
Head of Finance was concerned about all this.
And yet there was not this leader who was able to coordinate all these people, stick them together as a team and lead their efforts to do the right thing for cash generation.
On the contrary, the General Manager of the company, who was supposed to lead this chaos to conclusion was either fighting the distributors, who were the most important partners to the business or fighting the teams blaming that they were not doing their job well.
He was trying to lead the company without leading the financial cycle and without leading the people.
His lack of focus on cash flow and poor leadership skills (emotional literacy) bankrupted the company.
Cash flow responsibility does not belong to Finance only.
Leadership responsibility does not belong to managers only.
The leader of the company should have a clear understanding of how to lead the cash flow (financial literacy) and how to lead the people that impact the cash flow (emotional literacy).
Cash is the most delicate item in business.
And people are a bag of emotions.
In order to have a sustainable business, the business leader must have a strong understanding of cash cycle and a strong emotional bond with the people in the organization who have an impact on the cash cycle.
Missing any of this will certainly lead any company to bankruptcy.
In my next 2 articles, I will walk you deeper into how a company’s cash flow works and how you should upgrade your leadership skills to lead your teams well so that they make a positive impact on your cash flow.
Hope you find this article insightful!
Nil Akan Palacios, Executive Contributor Brainz Magazine
Nil Akan Palacios is an expert in cash generation for companies. She is a firm believer that companies go bankrupt not because lack of cash but because lack of a healthy relationship with cash. With her 26 years of adventorous big-corporate experience, Nil is now coaching business leaders on how to generate, protect and raise their free cash so that they lead a financially free and prosperous life. Nil is CEO of BOAT Business Coaching LLC with clients across Europe and Turkey. Her motto: You cannot lead a company without leading cash!
