Almost every growing company hits a cash crunch at one time or another. An error in product development consumes time and money. Sales increase faster than the company can finance them. Or maybe it's a pandemic that puts all kinds of pressure on many companies' cash. Revenues are falling. Receivables are difficult to collect. Banks are reluctant to lend.
Economic people will offer all kinds of advice to entrepreneurs facing a cash crunch, but much of it is either uninspired or directly counterproductive: Look for other lenders or investors. (Good luck). Stretch out your debts and lean hard on your customers to pay up. (In other words, alienating the people your business depends on.) Cut your labor costs by laying off people. (Hope you can hire them back when the time comes.)
There is a better way to deal with this problem. A few years ago, when a company called People Resources was facing an acute cash crisis, the founder, Janet Mug, came up with a strategy that won everyone over.
People Resources offered medical and psychological health services to corporate clients. Krus and many of her employees were nurses. The company had grown slowly but steadily, and Mug had borrowed from his personal savings to keep it afloat.
Now, however, she was drained. And People Resources' lack of cash threatened the future. One of us (Bill) offered to work with her, and together they mapped out a plan.
First, they talked to dozens of people who were affiliated with the company. The purpose was to identify strengths and weaknesses, and it actually did. Customers fantasize about the services. Employees and managers talked about their passion for providing good care. But then there was the economy, which no one but Janet and the company's controls had ever seen. They showed steady growth with thin margins, and demanded more and more money from Janet.
Then Bill and Janet pulled together a meeting with the controller and eight team members, most of them nurses. After reviewing the data, they asked team members to answer a series of questions:
- What should indicate that People Resources won in the coming year? Everyone agreed that the company's primary purpose was to serve people and change their lives. The more lives they touched, the more the company won.
- The second question arose: How could the company improve more lives? The team members knew that there was a lot of demand for People Resources services. So they needed to hire more clinicians.
- And what prevented People Resources from hiring more clinicians? "Janet!" said the members. "She will not let us hire anyone else."
- Why was Janet reluctant to hire more clinicians? Janet responded to this directly. She had put every penny she had into the company. She could not put in more, and the company did not generate extra money. So adding more employees was not an option.
- The last question for the group was this: Are you serious about serving more patients and changing more lives? If so, you need to come up with ways to make the company more profitable so that it can generate the cash it needs to grow.
At this point, Janet sighed in relief. Suddenly she was not the only one thinking about how to generate more money. She had partners to help carry the load. The group discussed the alternatives and came up with the idea of a scoreboard that tracks income per clinic. If this number rose, the company's profitability would also increase. The increased profits would generate cash needed for expansion.
So People Resources started tracking this key number and updating the scoreboard every week. Team members came up with a number of ideas, such as planning appointments more efficiently and offering new services based on patient requests. Pretty soon, revenues per clinic increased. Profits and cash also increased. Over time, Janet began hiring more clinicians and paying off some of the company's debts.
People Resources has since been sold to a larger company. But it would never have reached a sale if it had not survived the cash crisis. Ironically, the solution was not to tighten financial control, let alone cut labor costs. It was about treating employees as reliable partners ̵