The 8 Cash Flow Drivers are key areas influencing a company’s cash flow and profitability. These drivers, discussed in Gino Wickman’s Traction, help leadership teams focus on specific aspects of their businesses that can significantly impact financial performance.
The 8 Cash Flow Drivers:
- Price: Adjusting pricing strategies can directly influence profitability. For example, even a small increase in price can significantly boost the bottom line.
- Cost of Goods Sold (COGS)/Margin: Managing costs related to producing goods or services can improve margins. Negotiating better terms with suppliers or finding efficiencies in production can have a direct impact.
- Errors/Mistakes: Reducing mistakes and errors in operations not only saves costs but also enhances customer satisfaction and reduces redundancies.
- Compensation/Labor Costs: Effectively managing labor costs, including optimizing staff levels and compensation, can improve profitability without sacrificing quality or service.
- General & Administrative (G&A) Expenses: Keeping G&A expenses in check ensures that overhead costs do not erode profitability.
- Accounts Receivable (A/R) Days: Reducing the time it takes to collect customer payments can improve cash flow. This involves tightening credit terms and improving collection processes.
- Ancillary Sales: Increasing sales of additional products or services to existing customers can boost revenue without correspondingly increasing acquisition costs.
- Service Time: Optimizing service delivery times can increase the number of customers served and reduce costs associated with delays.
These drivers provide a framework for leadership teams to focus on improving cash flow and profitability by targeting specific areas within their business operations.
