4. – Cash, Treasury and Inventories Management

  • Weekly monitoring of the treasury, working capital lines and short-term credits and loans in general.

  • Regular meetings with the Banks to find out our position.

  • Liquidity cannot fall below a value (different according to each company).

Cost control plan
  • Regardless of the situation of the company, and even more if it is critical or at least concerning, it is good to have a cost containment plan. Logically it will vary depending on the before-mentioned situation, but we must always take these five steps into account:
  1. Analyse the income and expense accounts.

  2. Prioritise expenses.

  3. Make a budget and control it.

  4. Manage the surplus.

  5. Review the process.

Let’s go step by step.

  1. Analyse the income and expense accounts
  • In this first point we must analyse the income, expenses and debts (if any). The deeper the analysis, the more faithful the photo will be, and the better we will be able to prioritize and discriminate expenses.
    1. Income

      1. Which are they? Where do they come from?

      2. How often? Exact or variable date?

      3. Is it stable income?

    2. Expenses: it is the most complex block, due to the variety in their typology.

      1. How much is spent in the company?

      2. In which?

      3. How much money does each expense item take? Logically the main ones, and in any case, the more serious the problem is, the deeper the analysis has to be.

      4. We will categorize expenses into five fundamental types:

        1. Fixed: those basic ones, which we cannot leave out, and which are not linked to the activity, generally productive, of the company. Normally they are given in a mandatory and stable manner in the evaluation period (month, year): rentals, energy, Internet, etc.

        2. Fixed extra: those that meet the criteria of the previous point, but are not stable in the evaluated period: training, non-accrued bonuses, etc.

        3. Variables: those that are connected to the activity of the company: energy, maintenance, personnel (although some economic schools consider them fixed), etc.

        4. Ant: they are those that suppose a fairly stable or fixed amount, but that due to their atomization or because each of them is not relevant, they are not given too much importance: water consumption, small repairs, etc.o Unforeseen: the own word says so. They are those that are due to distractions and lack of anticipation, or to unforeseeable events, in many cases related to nature (floods, or storms with blackouts, etc.) or others.

    3. Debts: typical questions:

      1. What debts does the company have?

      2. Of what magnitude?

      3. What is the level of urgency to attend them?

    4. Indebtedness itself is not only not bad, but a structure of own and other funds is convenient. The bad thing is the excess of indebtedness.

  1. Prioritise expenses
  • This fundamentally means identifying those that are real from those that are superfluous, through a calm and rational screening of them, in order to not to return to the situation that has brought us here.
    1. Priority expenses. Within this group are logically:

      1. Fixed expenses.

      2. Extra fixed expenses.

      3. Debts.


        1. That the expenses are fixed, or fixed extras, does not mean that they have to be in the amount in which they appear. Therefore, good coordination between demanding departments and purchaser ones is essential to determine that what is demanded is exactly what is available, or it is at least, substantially close. And starting from there, the policies of the three offers to purchase, offer the possibility to compare alternatives, at least for the most significant items.

        2. With regard to debts, they should be cleared as soon as possible, so we pay maximum attention to the preferred ones, in a short / long-term balance.

    2. Superfluous expenses: we must remove ant expenses as much as possible, because they are mostly wasteful.

    3. Variable expenses: in this case, either we increase activity or decrease expenses. There is no other way to lower the ratio. Regarding the increase in activity and business, we have already talked about it in point 1. And regarding the reduction of unit expenses, the control and reduction policy must be the same as the one we have decided for the priority ones.

    4. Savings and investments: they are two different concepts. When we save, we are saving money to dispose of it in the future. Instead, when we invest, we seek to obtain a return on money saved, that is, a step further.

      1. The logical thing is that the financial department is in charge of both concepts, and converts the first into the second, much more since having immobilized money does not rent as before, with the new monetary policies. Now risk has to be taken.

      2. Although they are not an expense as such, it has to be made a monthly cost saving plan and go to meet them. The ideal is to have a goal as if it were a fixed expense, once, logically defined the activity that we are going to have in that month.

 3. Make a budget and control it

  • With ERPs and the appropriate methodology, there is an annual budget that is then divided into months according to certain criteria, which respond to the same cost concepts that we have discussed (fixed, variable, ant, etc).

  • If we are talking about a cost control plan, the logical thing is that each department has developed one in accordance with the spending criteria established in the company, and also with the objectives to be achieved.

  • It is very important to overcome the resistance to doing so, which is usually generalized, unless we are in the presence of managers who are very aware of the problem. The plans, therefore, must be realistic, but also ambitious and, above all, must not put the company’s activity at risk beyond a reasonable amount. Without activity, no cost control plan is required. The coordination of the exercise must be carried out by the economic-financial department.

  • It is very important to determine the expected activity in the horizon in which you want to define the cost control plan and the contribution margin (sales minus variable expenses) or total margin (sales minus total expenses) in total and in percentage that is going to get. This corresponds to the sales department, and it is usually the most difficult part of the exercise. Large companies carry out this exercise based on quarterly estimates requested by their Board of Directors or regulatory bodies in the case of listed companies in the presentation of results.

  • Once the previous exercise has been done, the cost part is done as if it were a new budget, with:

    • ABC cost methodology.

    • Zero-based budget.

    • Based on the historical proportions or ratios of each item and assuming that more or less they will be repeated in the year we are doing:

      • Annualized between 12 for the case of those that can be done (case of personnel costs, prorating the variable that supposes the extra payments, if there are any and in the months that there are).

      • Related to the volume of sales or contribution in the case of variables.

      • Related to the unit of productive measure (pieces, kilos, meters, etc).

      • Related to the total costs in the case of fixed ones.

      • Investments, which, although they are computed based on amortization, is a net cash outflow at the time the expense occurs.o

    • These are the most important parts. Of course, then there are financial expenses and savings, taxes, etc. Depreciations and Amortizations, not being a physical expense in themselves, are not necessary for the plan, since they are given according to the D&A plan itself.

  1. Surplus management
  • Once the review has been carried out, it is necessary to implement the agreed actions, and see what is done with the surplus. Typically, one of these four things is done:

    • Merge and Acquisitions of companies in losses which are coming from similar businesses of ours.

    • Amortize debt, especially at the beginning of the loans, when the interest is paid.

    • Invest in the company itself.

    • Place the surplus in financial products, something that in the current situation is increasingly complicated.

  • In any of the cases, it is the finance department that leads the process, and follows the directives of the management team.
  1. Process review
  • From time to time it is necessary to carry out a review of the process, to see if it has met expectations, to confirm what has been repaired, or to touch it up (PDCA cycle). The ideal is to carry out two cadences:

    • Monthly, to make reality adjustments based on how the deviation from the plan is. But the plan is not revised. It is reality that must be adjusted.

    • Quarterly, the plan should be reviewed, regardless of reality, but the more thoroughly the greater the deviation between the plan and reality is.

The plan must always be up to date. There are always unforeseen, and seasonal issues, that influence the future of the business. The economic-financial situation of the company is changing, and therefore the status of the plan must be faithfully reflected.

However, it is important not to become obsessed with control to the point that it conditions management in such a way that it can block it. It is the money that must work for the company, and not the other way around.Review the process.

Capital authorizations
  • Preparation of a capital authorization table, indicating who and for what in each level is authorized to spend or invest.
Inventory management
  • Definition of obsolete and non-moving stock.

  • Raw material just for orders versus batch manufacturing.

  • Proactive collective management of clients + commercial + financial + planning, etc.

  • Reduction of bottlenecks, homogenization of products, adaptation to capacity.

  • Reduction obtained: from 20% in 2017 to 17.7% in 2018.


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