Alternatives to crude cost cutting while business is in survival mode

IT has to understand how cash saving measures by their organisation alter business and development priorities and how IT can respond by proving its value.

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As a result of the economic down-turn the strategic business goals have shifted for almost every company. Short term survival has become a topic on virtually every C-level agenda. The resulting issues facing the business in this time are amongst others:

  • Lower income due to less customer (both Consumer and Business) spending
  • Lack of investment capital from the financial market (As a result of Financial Institutes unwillingness to supply loans)
  • Increased business risk (increased risk of business partners defaulting on their commitments)

All this insecurity leads to organisations trying to increase their financial reserves. To achieve this business leaders focus on improving their Cash-Flow: Ensuring each month enough money comes in to pay for the bills and hopefully even a bit more, to improve the financial reserves .

In the worst of times the cash-flow is negative (more money is flows out than comes in). This eats into the reserves. When the reserves are depleted in combination with a negative cash-flow the organisation goes bankrupt. Which explains the sense of urgency shown by top-management.

For a correct understanding of the Cash-flow equation it is important to understand it is only concerned with actual money flows:

  • Sales on credit does not actually bring cash into the company at the moment the deal is closed. Only when the credit is due (and paid) it results in positive cash-flow
  • On the other hand, depreciation of assets does not involve actual payments leaving the organisation so this also does not influence cash-flow

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