Managing a Nimble Business: Why Money Matters

Managing a nimble business is like telling yourself you're going to cut back on your latte habit this month to save some cash: It's easier said than done.

Yet the hard truth is that money affords you everything your business needs to pull ahead of the competition—even time.

Money—how your business both spends and receives it—can play a critical role in your ability to respond to change. That ability is what being a nimble business is all about. Sometimes it's less about how much money you have and more about how you manage how it comes and goes from your business.

Let's dive into why money matters when it comes to managing a nimble business and some mistakes you can avoid to up your financial flexibility.

Responding to Change

“We know things change but we don't know what those changes are in advance," says Preet Banjaree. 

As the head of a consulting practice focusing on the commercial applications of behavioral economics for the wealth management industry, Banjaree has seen cash-strapped businesses miss out on market inefficiencies. The kicker? These were inefficiencies they were poised to exploit.

“The last thing you want your business to be is strapped for cash and unable to respond to the changes," says Banjaree. “This means other businesses will spring ahead and you'll be left playing a game of catch up, likely because of how you've managed finances in the past."

When you're late on payments to vendors, oftentimes they'll switch you to new terms. This means your Net 60 payments are now Net 30, making your cash flow even less flexible. 

And don't discount how important reputation is in the business community, especially when it comes to money. Having a reputation for being a good financial risk with customers and vendors alike isn't likely to threaten a new client relationship later down the line.

From Knowledge Comes Power

“Owners of companies can oftentimes be incredibly smart within their industries, but not so smart with their money," says Kasia Kaufman, CPA and manager with FGMK, a full-service tax and advisory firm. 

Here's where data becomes a crucial component of managing a nimble business.

“You can't stay on top of things when you're using old data," says Kaufman. “If you're closing your books two to three months after the end of the quarter, you're using old data. You have to have meticulous accounting controls in place. Close your books on time and review expenses quarterly. Without fresh data, you can't plan and it becomes easier to spend money when, and on things, you shouldn't."

Companies also need to know their weaknesses and blind spots. To help boost your financial knowledge about your company, Banjaree has two suggestions. First, perform a “crash test." Second, review your terms across both accounts payable and accounts receivable.

“If you have 10 customers and something happens to your biggest customer, that impacts both your business and your other nine customers," says Banjaree. 

One way to avoid this by assessing your business's cash flow risks and running them through one by one. Banjaree calls this a “crash test."

“If you're like the typical business owner, the idea of running all your 'crashes' might keep you up at night," says Banjaree. “But think about how would you find the cash in those worst-case scenario situations. Your business will come out the better for it."

He also advises those interested in managing a nimble business to perform a payment term comparison. 

“I've seen it happen where a business extends customers Net 90 but their vendors expect Net 30," says Banjaree. 

This creates a cash-flow crunch. It's important to try to match the speed at which cash flows into your company and then flows back out to vendors. Otherwise, you can find your business on the unfavorable end of terms and less nimble than you could have been if you'd performed a review and negotiated with vendors to match your receivables terms.

ROI Isn't a Buzzword

A privilege of managing a nimble business is the return on investment for keeping a wise eye on your company's money. Solid money management practices can resonate throughout your organization, long past the corridor to the CFO's office. Those practices can dictate your ability to upgrade equipment, hire new talent and consistently innovate. It can also affect your ability to invest in the two most important aspects of your business: the people who make it run and the people you serve every day.

Being nimble is a reward for finances well-managed. Knowledge sought and questions asked. Terms met and long-term relationships built. 

Not only does a healthy respect for money allow you to keep and grow the business you've worked hard to build—it also helps you zig when others zag, access capital when other companies are strapped by poor finances and protect your obligations to both your team and the people you serve each day.

Read more articles on managing money.

Photo: Getty Images