Originally published 30-Mar-2021 on LinkedIn.
Went through some old notes, and found this from a few years back when discussing "cash position" with a CRO project manager.
Being "cash neutral" is fine...until the customer terminates the project, or runs into financial distress, or puts the project on hold.
Be cash positive.
The general industry standard for pharmaceutical support services is that 15%-20% or more of clinical projects terminate early. When this happens, think of it like a shark attack.
If your project is cash positive when the attack occurs, the shark can't touch your revenues.
If your project is cash neutral, the shark is close behind, because your revenues are only safe if the customer keeps paying you. And your customer is now *extremely* cost conscious.
If your project is cash negative, the shark decides your fate. Brace for writeoffs.
Revenue risk during project distress is just one of several negative outcomes associated with poor project cash position. Customer service, corporate liquidity, and quality of earnings all suffer when service providers routinely negotiate poor payment terms with customers.
Thanks for reading! Upcoming posts will focus on how to improve project cash flow and take advantage of the resulting benefits. Generating improved cash flow from existing and upcoming projects is a rapid and controllable way to increase the value of your company.