Cash Flow: The lifeblood of success.

he tight-rope act that the U.S. economy’s performed over the last six months has presented a plethora of divergent indicators that have sown confusion, even among the most prescient economists. While a strong GDP rebound and solid consumer spending has provided the foundation for stability, the cooling labor market, persistent inflation and a struggling manufacturing sector have presented counterpoint challenges. The economic trajectory in the coming months will in all likelihood depend on the complex interplay of these competing forces and the policy decisions made in response to them.

If you’re a business owner, with no prevailing notion of how to make sound decisions for the foreseeable future, it’s likely you’re not sleeping as well as you perhaps should be, and cold comfort lies in the unifying theme that the rest of corporate America is more or less in the same boat.

The irony is that for a company to be resilient and adaptable in these economic times—it had to prepare to be, and a big part of the traditional foresight that good businesspeople maintain is a healthy, constant understanding of cashflow. Their business school DNA has taught them that cash to a company is like blood to a body—it needs to get where it’s going, when it needs to be there, or bad things start to happen.

When Auburn legend Bo Jackson went down playing for the NFL Raiders it was a serious injury, but it was only later that doctors discovered the bigger issue—his miniscule, after-thought blood vessels were no longer delivering to his powerful left hip. And no matter how epic it was, Bo’s athletic career was over in a blink.

Venerable U.S. retailer, W.T. Grant had an epic run of its own. Starting in 1907, it was a staple of the American economy for more than 50 years. In the 1960s an upstart competitor with a cool name, K-Mart, happened on the scene. W.T. Grant felt the rush of modernity passing it by and in response, began an aggressive and unchecked expansion, building hundreds of stores as fast as they could. W.T. Grant hemorrhaged cash. Unfortunately, many of the new stores were hurried, ill-planned and didn’t attract customers. Desperate to boost sales, W.T. Grant added insult to injury by offering very easy credit terms—to pretty much anybody who walked through their doors. When their new customers couldn’t afford to pay for what they’d purchased, the arterial accounts receivable flow that the company had relied on for generations trickled to a drip, and with not enough cash in the coffers, W.T. Grant became what was at the time, the second largest bankruptcy in U.S. history. The company survived a great depression and two world wars, but when they nicked a finger on cash flow, much like Bo, a great run was over.

For decades, cash flow forecasting has been the primary hedge against uncertainty. The quarterly and the long-term annual cash flow forecasts provided sufficient data that allowed the C-Suite to make informed, proactive decisions—and enjoy a better night’s sleep, resting assured that the traditional precautions have been made. But are the traditional precautions enough? Or do today’s challenges demand greater innovation to make sure the lifeblood of a company continues to flow?

Once the province of large corporations, Artificial Intelligence tools are now widely available. These tools significantly enhance budgeting and cash flow forecasting and management by leveraging machine learning to analyze large datasets, identify hidden patterns and improve accuracy beyond traditional methods. The algorithms can sort through historical financial data, market trends, economic shifts and even weather patterns, and generate more precise forecasts than human analysis alone. Moreover, integrating AI with Enterprise Resource Planning systems can generate a real-time look at a company’s cash position which shortens reaction time and promotes agile financial management. Generative AI and predictive analytics can play out hundreds of scenarios from best-case to worst, assess potential impacts on cash flow and help a business prepare for different possible outcomes. With a centralized dynamic model, a company can now synthesize live data from all operational parts of the business—AR, AP, sales pipeline, billing and subscription platforms, payroll, tax payments and benefit expenses—which enables faster, more accurate decisions that lead to less risk, greater profits and a company with a strong and steady pulse.

The underpinning of good cash flow management lies in a host of basic accounting practices and procedures. The basic, routine nature of these procedures makes them a perfect candidate for automation. Agentic AI provides not only a cost savings, but a greater efficiency and accuracy than human operation.

Inventory control can affect cash-on-hand, and traditional, conventional thinking may no longer be fiscally healthy. Pre-Covid, just in time (JIT) inventory, was a cornerstone of modern lean manufacturing, but under stress, it created high levels of supply chain risk. Resilient companies adapt, make adjustments, look beyond a surface view of their supply chains, to fully understand the matrix of their suppliers’ suppliers, and keep the inventory necessary to keep processes uninterrupted.

Then there’s the operational POV of cash flow seen through the nuts and bolts of how a company creates and delivers its products or services. Mark Clark, a clinical professor in the department of supply chain management in the Harbert College of Business, has seen the hard lessons learned from the pandemic. “Manufacturing without diverse suppliers is risky in the best of time, but when things are shaky, backup matters. If you’re manufacturing vitamins made of five components being shipped from five different countries, and one of them suddenly has an issue or their costs skyrockets for some reason—if you haven’t planned for that contingency, it doesn’t matter that the other four components are ready to go, without the fifth you don’t have a vitamin you can sell. No product, no sales, bad cash flow.”

In this world of global interconnectedness, it’s no wonder that a firm’s supply chains have an outsized effect on profitability. No matter the cause, if the product doesn’t arrive when you need it, where you need it, at a price you need it, your profit model and your cash flow change. “Superior performance,” says Harbert Eminent Scholar Glenn Richey, “depends on supply chain responsiveness—to the environment, to supply chain members, to stakeholders and to the consumer.”

The last few years may have taught us some hard lessons about supply chain risk, but what about risk on the consumer side? In an uncertain economy—whether it’s born out of a pandemic, government policies, climate change or military conflict—your risks on the customer side regarding quality, price and service are significant and multifaceted. If customers are forced to tighten belts, they become more cautious with their spending, their expectations and behaviors shift—and new challenges arise for your business.

The most immediate and apparent of which lies in pricing as customers under budgetary constraints become more price-sensitive and discerning in their purchases, comparing costs, chasing discounts and delaying non-essential purchases. All of which leads to pressure on your profit margins and potential decisions about offering promotions or even lowering prices to remain competitive. You can also expect your customers to more closely scrutinize your value proposition, feel a greater need to justify the price they pay for the quality, features and benefits they receive. And if they perceive a disconnect, it’s possible they could switch to a lower-cost alternative or generic brand. Customers may adopt a “good enough” mentality, become more willing to accept a lower-quality product or service if the price is significantly lower, as the desire for durability and premium features getting overshadowed by the immediate need for savings. B2B and B2C environments aren’t exempt either, where you may find customers likely to want to negotiate price or payment terms.

If you’re in a service industry the risks are perhaps less tangible but heightened nonetheless—and also provide the key to making sure your customers stay your customers. When money’s tight consumers can be less forgiving, and a single negative service experience can be enough to drive customers to a competitor. Especially in the age of social media, a poor service experience can be amplified quickly, deterring a great number of potential customers who are already hesitant to spend. Brand loyalty can become more tenuous, ironically just as your business may be facing cuts in customer support staff, training or technology. This can result in longer wait times, less effective problem resolution and an even greater decline in overall customer satisfaction. And the party favor of all that—a hard to miss dip in the amount of cash coming in the door.

But interestingly, companies who pride themselves on providing great service and exceptional quality, are the same companies that survive and even thrive when the going gets tough. Meeting and exceeding customer expectations when it’s difficult to do so, creates a noticeable differentiation in the market from companies that don’t or won’t. Smart, client-centric companies also know that it doesn’t necessarily take larger budgets or more complex systems to make their customers feel understood, it takes the human part—time, effort and the ability to listen. If you can show that you understand, yes even care about, the situation your customers are in and do your level best to meet their needs, chances are you’ll be remembered and rewarded in the brighter days ahead.

So as distracting and difficult as global dynamics can be for corporate management, if you create a culture of resourcefulness, adaptability and customer service, even as you build in the mechanics to adjust systems and work well with partners as situations evolve—then the one thing you likely won’t have to worry about is cash flow, the lifeblood that keeps you in the game.

In the wake of Covid, as companies stocked more inventory as a hedge against disruption, it looked like “just in time,” a key component of lean manufacturing was being replaced by “just in case.” But post Covid in 2021, Toyota, the creator of the lean approach surpassed GM to become the top auto seller in the U.S.

Toyota took the time to thoroughly map its supply chains, forecast lead times sometimes down to the minute and identify where the chains were most vulnerable. They are not customers to their suppliers; they are partners.

“Most think that supply chains are linear, but they’re not, they’re messy and complex,” says Jen Blackhurst, Harbert Professor of Supply Chain Management. “I was working with a heavy equipment manufacturer and when the tsunami hit Japan, they immediately got in touch with their supplier and breathed a sigh of relief. All okay. But it wasn’t. Their immediate supplier was unharmed, but that supplier’s supplier was in trouble and that collapsed the supply chain. To mitigate risk, you’ve got to map your supply chains and not just the tier one suppliers, but their suppliers and their suppliers. You may not be able to stop the disruption, but you can be better prepared for the risk.”

Toyota learned a lot from that same tsunami. A plant that furnished critical microcontrollers was damaged. Toyota helped rebuild the plant and learned about the fragility of the manufacturing process. Accordingly, they adjusted their estimate of lead time and revised the amount of inventory they carried, building a safety stock that takes risk into account. That strategic approach gave them a competitive edge ten years before most other automakers.