Written by: Luis Carlos Bravo P.
Published in: PORTAFOLIO MAY 25 2020 – 07:46 P.M.

I am a financial advisor. For years, I have advised business owners and managers, supporting them in making managerial decisions so that their families and businesses thrive. I perfectly understand the meaning of “cash is king”, one of the most used expressions in business. I simply disagree with this financial maxim, and I have to say it even worries me.

Cash flows are undoubtedly critical for a business. A company that does not take care of its cash can quickly get into trouble and, if it does not take remedial measures, it may eventually fall into bankruptcy. It is also true that during an economic downturn like the current one, companies need to take special care of their cash to guarantee their ongoing operation. It would be negligent not to pay attention to cash flows and run the company as if there were no payment commitments.

Nevertheless, cash is not a creation of nature but a human creation, and this single fact, in my opinion, makes a big difference. It means that the kings are still us, human beings, and cash should be at our service.

There will be no company if there are no customers who genuinely like it and trust what it does. There will be no company either, without employees willing to commit to making things go well. The company would cease to exist also if suppliers were unwilling to work hard to fulfill all the requirements to meet the customers’ needs.

In short, a company’s stakeholders are crucial for its survival because it is, in essence, an organization of human beings, and, as such, it requires the love and commitment of human beings to exist.

In regular times, we can and do believe that success and money are very similar and that the financial results of a company are evidence of good management. As managers, we monitor the company’s revenues and profits, and we work hard to build challenging plans based on numerical results.

I am ok with that. But sometimes we forget that it is people who make all of this possible. A great future is likely if, and only if our company is valuable to our people and society.

During crises, this truth comes out, and companies become more humane than ever because the social ties are more necessary than ever. Without good companies, we all lose.

It will not be enough to run social media campaigns to tell how important people are to the company. If these campaigns do not coincide with reality, they will only be a multiplier of resentments.

From this perspective, it would be interesting to scrutinize those companies and managers who try to take advantage of the current situation to abuse. Those who raise prices at speculative levels. Those who fire their workers as if they were useless machines. Those who squeeze their suppliers and cause them almost to fall into bankruptcy.

C-level executives that believe that cash is king will seek only short-term financial results. They may make some money, but the stakeholders who interact with them have a good memory, including the abused customers, abused employees, and broken suppliers.

On the other hand, if we understand that our companies’ success is related to the stakeholders’ well-being, we can choose a different path based on constructive dialogue with clients, employees, suppliers, and society in general.

Sales are not money, but people who believe in the company and in what it does. Costs and expenses are not money but people working in the company or for it. Cash flows, hence, are the result of the interaction between people and the company. Cash inflows come from people, and cash outflows go to the people.

If the company is valuable and loved, the stakeholders will continuously seek to interact with it. During the crisis, clients will signal how it can generate value to them, and some of them will even be ready to buy some products to help the company and its employees to get over the bad moment. There will also be committed employees willing to work hard, even if, at times, there may not be enough money to pay them what they deserve.

During this crisis, many companies have managed to reinvent themselves based on this concept. In their dialogue with different stakeholders, they have found out what people are needing and how the organization’s capabilities can be used to fulfill those needs.

Some universities are developing ventilators, and automakers are producing them. Simultaneously, some clothing manufacturers are producing biosafety suits and other garments in surgical fabrics. Also, some ice cream producers offer their cold logistics capabilities, and entertainment companies, such as fairs and museums, have welcomed virtuality.

Valuable companies know how to align with society and reinvent themselves, looking for new ways to generate value for their stakeholders.

In sum, it is probably better to say “people are king” to remind ourselves that our people are far above the cash.

Luis Bravo. Portafolio. (2020, May 25). Cash is not king! of: https://www.portafolio.co/economia/finanzas/la-caja-no-es-la-reina-luis-carlos-bravo-541128

AURUM® Advisors

Luis Carlos Bravo