The Power of One: The 7 main financial levers available to managers to improve cash and returns in the business are:

1. Price: You can increase the price of your goods and services.

2. Volume: You can sell more units at the same price.

3. Cost of goods sold/direct costs: You can reduce the price you pay for your raw materials and direct labor.

4. Operating expenses: You can reduce your operating costs.

5. Accounts receivable: You can collect from your debtors faster.

6. Inventory/WIP (work in progress): You can reduce the amount of stock you have on hand.

7. Accounts payable: You can slow down the payment of creditors.

In general, you’ll pick a Critical Number that will address either an opportunity or a challenge on the People/Balance Sheet side of the business (e.g., reduce employee turnover, improve customer service scores, or dramatically reduce a credit line with the bank) or the Process/Profit & Loss side (e.g., improve gross margins, reduce production cycle time, or increase sales close ratios).

Almost all of these ideas fall into three general categories where you can make improvements:

1. Shorten cycle times.

1. Eliminate mistakes.

1. Change the business model.

To fix this, Gary had a choice of two main strategies:

1. Increasing his gross margin.

1. Reducing his working capital.

If he didn’t make a change in the relationship between working capital and profitability, his company was not going to survive.

To tackle the cash conversion cycle, start by reading “How Fast Can Your Company Afford to Grow?” a Harvard Business Review article by Neil C. Churchill and John W. Mullins.