The thing about Entrepreneurs is that they are often the opposite of Accountants.

I’ve never come across an Entrepreneur who said “I’ve got this great idea, but I need to optimise the working capital cycle before going ahead”.  They just say “I’ve got a great idea” and then just go for it- leaving the accountants to pick up the pieces.

I was working with an Entrepreneur and we were having a series of conversations around the question of how much cash the business had at its disposal.

Superficially, there looked like there was plenty of money in the bank.  However, there were overdrafts on the other two (US Dollar and Euro) accounts – and the deal with the bank was that the business should always be in a net positive position.  To further complicate matters, the business funded its working capital by discounting its invoices.  This facility was only utilised as and when funds were required so there was sometimes some headroom, sometimes not.  However, during the busy run-up to Christmas, the limiting factor wasn’t the availability of invoices but the bank facility ceiling.

Complicated – and at the time the answer to the question was “zero!”

My challenge was to phrase this concept in such a way that the owner, and the business, could get their head around what it meant so that they could be more focused on cash.  The answer came from an interesting conversation that ended with this:

“So, what you are saying is that this is how much money the business could get its hands on, right now, if I had to pay a ransom to get my kids back?”

We’d hit on the answer.  The phraseology made sense because it reflected the Entrepreneur’s single most important value – Family.  Suddenly we had a real, massive, sustainable focus on cash – and the results were fantastic!

From that point forwards, the question was never:

“What is the net total, in sterling, of the balances on the GBP, USD and EUR bank accounts plus any undrawn available funds on the invoice discounting facility less any retentions and subject to any headroom restrictions?”

It was always:

“What’s the kidnap fund?”

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