Over the last several weeks we explored how marketing organizations can impact income statements, profit, cash flow and owner earnings, inventory controls, and capital expenditures. All of these measurements ultimately feed into the balance sheet.
The balance sheet reflects the assets like cash, stocks, inventoried raw materials, land, equipment, and accounts receivable. Liabilities are also included and these can include money owed to a bank, unpaid for parts and inventory, and accounts payable. Lastly, equity (total assets minus total liabilities) at a point in time is also listed. Essentially the balance sheet lists what the company owns, what is owes, and how much it is worth. Companies typically prepare balance sheets monthly, quarterly, and the end of the fiscal year. The balance sheet summarizes the company's financial position at a given point in time.
On one side of the ledger balance sheet are listed the assets, liabilities and equity are on the other side. As you can surmise, the objective is to balance the 2 sides of the ledger. With assets, liabilities, and equity always in flux, companies must work to bring balance to their financials. And as we've covered in previous weeks, marketing can contribute greatly to this financial balance.
Companies must avoid having their cash held up in inventory; therefore they want to carry as little inventory as possible. Through Demand Prediction Reporting, companies can build out data models that track (or pull data over from an existing system) inventory, purchase history, frequency of purchase, quantities of assets, partner they buy from, average delivery time per partner and per asset. Based on the data model, they can create dashboards that demonstrate trends in purchase (time of year, geography, etc), opportunities for up-sells and add-ons, and sales cycle duration. This information can be used to create automated trigger emails that send communications in the month or so leading up to when they typically order. Companies are now integrating systems and tying customer-facing channels into their sales, marketing, and production programs.
Accelerate Collection of Receivables
But inventory reduction is only one step in finding financial balance. Cash flow is also pivotal. Cash flow is the revenue or expense stream that changes a cash account over a given period. It's a measure of the company's ability to generate cash over a period of time. Cash flow increase is usually impacted by financing, operations or investing. Cash outflows result from expenses or investments. The faster receivables are collected, the better a company's cash position. If you can reduce inventory or speed up collection of receivables, you will have a direct and immediate impact on your company's cash position. The efficiency ratios let you know how you're doing on just such measures of performance. By implementing onboarding programs, cash flow scoring, and advocacy programs, marketing can contribute to this increased collection of receivables.
Increase Asset Turnover Ratio
Managing inventory, increasing sales, and reducing days sales outstanding all contribute to financial positioning by increasing the asset turnover ratio. Total asset turnover gauges efficiency in the use of all assets. If marketers can assist in inventory reduction, total asset turnover rises. If marketers can aid in cutting average receivables, total asset turnover rises. If marketers can drive demand and nurture opportunity through the buy-cycle, sales will increase and total asset turnover will rise. Any of these managing- the- balance- sheet moves improves efficiency.
In the end it's important we correlate our marketing measurements with the larger business. Identify how you currently measure performance for both your department and yourself. How do these numbers relate to your company's financial statements and impact the performance? Once you understand these financial measures you can begin to operate to your full potential, bring balance to the financials, and contribute to the fiscal wellness of the company.