Discussion Board #3
Jerry Kevin Jones
BUSI-530
Liberty University
June 13, 2017
There is a common phrase in business: "Cash is king." "Cash flow is the life-blood of a
company. Without it, a company will fail" (Hicks, 2012). Yet, companies often have to take
risks that could potentially jeopardize their cash flow (e.g., new projects, growth, capital
budgeting, etc.). Assume you are the CFO of a struggling company. While you do have a
positive cash flow, it is minimal at best. If something does not change soon, the company
will go under. Fortunately, your product development team has just created a new product
that will not only save the company from financial demise but will also revolutionize how
the industry does business. The problem is that the product is still 2 years away from being
able to be sold to the public, and you will run out of cash within the next 6 months. How
would you propose obtaining the funds needed to keep the company alive and thriving for
the next 2 years until you are able to see a return on the product development? How would
you keep the stakeholders happy?
The idea that “cash is king” is widespread thinking amongst people within the financial
community. This is the perspective that an organization with excess cash is free to continue to
invest in projects by converting the cash asset to fixed assets (projects) with positive NPV. These
organizations are not as exposed to the tightening credit market as rival companies. Having
excess debt capacity may not translate into actual flexibility if that capacity cannot be accessed,
where as having the cash on hand allows for investment regardless of market conditions (Smith,
2014).
If were the CFO of this company I would look at things, from both the short term and
long term. On the short term, I would endeavor to find venture capitalists that would invest in
these new and promising projects. Venture capitalists fund a great number of projects across the
world. Without this type of investor, we would not have much of the global business that we see
today. While much money has been invested in start-ups, most venture capital is spent on
governmental and corporate projects. Actually, The majority of that capital went to follow-on
funding for projects originally developed through the far greater expenditures of governments
($63 billion) and corporations ($133 billion) (Zider, 1998). Because of the projects that we have
begun, I would solicit this type investor.
As the CFO, I would also have to realize that we didn’t get this way overnight. I feel that
it would be my responsibility to thoroughly investigate the possible reasons why we are
struggling. One thing that can be done is to investigate the ways that we can reduce costs as a
company. Research tells us that the best way to begin cutting costs is by assigning accountability
at the right levels. This accountability must begin with the top managers of each division. I
would meet with each of these managers and explain the critical nature of our circumstances.
One of the issues I would hold each manager accountable for, is the way in which we collect and
report information. By being more defined in the way we collect information, we could possibly
uncover money’s that aren’t spent appropriately. I would also communicate these cost-cutting
efforts as strategy, not just temporary activities.
Another component that I would initiate is to change the culture concerning how we
spend money as an organization. I would do this by setting new policies and procedures in place
and then modeling desired behavior (Agrawal, Nottebohm, and West, 2010).
I would then endeavor to use external benchmarking to compare our individual costs to
those of my pier companies. Benchmarking is the process of studying industry or competitive
practices, functions and products and finding ways to meet or improve upon them. ... There are
References
Agrawal, Ankur. Nottebohm, Olivia., and West, Andy. Five Ways CFO’s can Make Cost
Cut’s Stick, McKinsey & Company (2010).
Retrieved from http://www.mckinsey.com/business-functions/strategy-and-corporate-
finance/our-insights/five-ways-cfos-can-make-cost-cuts-stick
Smith, Garret C. C. Smith., Managerial Finance; Patrington40.5 (2014): 506-534. Retrieved
from http://search.proquest.com.ezproxy.liberty.edu/docview/1520633940?pq-
origsite=summon&accountid=12085
Suttle, Rick., The Advantages of Benchmarking for an Organization, Chron (2017). Retrieved
several key advantages to using benchmarking in an organization (Suttel, 2017). This could
bring great clarity to areas that need immediate, as well as long term attention.
It is my belief that having both a short and long term strategy will keep stakeholders
happy. I will also consistently communicate this strategy and its success with my stakeholders.
Another key component to my strategy would be prayer. Mark 11:24 tells us, “Therefore I tell
you, whatever you ask in prayer, believe that you have received it, and it will be yours.” This
would be something that I would encourage my stakeholders to do this also.
Jerry Kevin Jones
from http://smallbusiness.chron.com/advantages-benchmarking-organization-30952.html
Zider, Bob., How Venture Capital Works, Harvard Business Review, Nov-Dec Issue (1998).
Retrieved from https://hbr.org/1998/11/how-venture-capital-works
