The term VUCA World (Volatility, Uncertainty, Complexity, Ambiguity) was created back in the 1990s. The term BANI World (Brittle, Anxious, Nonlinear, Incomprehensible) appeared later, in 2018.
But regardless of the label, we live in an increasingly disruptive time. Each year brings both new challenges and new opportunities. The crisis caused by the COVID pandemic in 2020 and the emergence of publicly accessible AI tools in late 2022 (such as ChatGPT) are recent examples of such “disruptions.”
For finance executives, however, I believe the challenges remain the same—perhaps just more frequent: helping business owners understand that Revenue is Ego/Vanity; EBITDA is Concept/Accounting; and Cash Flow (FCF) is Reality.
I say this because financial resilience is achieved when a company focuses on generating cash from its operations. It doesn’t matter if your revenue keeps growing if sales don’t bring in positive margins. It doesn’t matter if you have margins if they aren’t sufficient to cover fixed costs and produce a positive EBITDA. And it doesn’t matter what your EBITDA is if it isn’t enough to cover your company’s Working Capital Requirements (WCR).
I’ve seen many companies go bankrupt because they grew too fast. Founders often focus solely on increasing revenue, without having a senior finance executive to show them that their WCR was consuming all their operating cash flow. This typically happens due to rising inventory levels (to maintain minimum stock for growing sales), shorter accounts payable terms (because suppliers are also “strained” by their own WCR), and longer accounts receivable terms (especially if the company shifts its client profile—from B2C to B2B, for instance).
Want to build resilience in your business? Focus on cash generation rather than on mere revenue growth. Find a true financial partner (at the C-Level) who can guide and advise you. And think – and rethink – your entire growth strategy to ensure not only your company’s longevity but even its survival!
