Cash flow

transformation
Improving free cash flow
starts with enabling a
cash‑focused organization
 Your organization’s cash focus:
• Increase free cash flow
• Strengthen the balance sheet
• Increase return on capital
• Improve operational effectiveness
• Increase shareholder value

A cash-focused organization can help enhance

the outcomes of your business strategies
“Cash is king”, as the saying goes.
Experience tells us that those companies that adopt strong
cash flow disciplines have success in revenue growth, cost
containment and capital efficiency, and ultimately the ability
to achieve their mission.
Factors such as technology and operational processes impact
the organization’s competitive agility. Just as important are
the people, including their behaviours and norms that will
impact the organization's cultural tone, and with it determine
how successful it is in achieving its objectives.
Despite a heightened awareness of the importance of
cash, many companies still fail to address the fundamental
organizational obstacles that prevent cash flow optimization.
At EY, we know that by aligning the culture of the
organization to more of a cash focus, coupled with an
effective approach to optimize the business cash drivers,
significant improvements can be realized in both the short
and long terms.

Free Cash Flow

Working
EBITDA CAPEX
Capital

Business Strategies

Mission

2 | Cash flow transformation

Enabling a cash-focused organization
Moving to a more cash-focused organization is about shifting
your people’s mindset so that individual, functional and Focus on fundamentals
collective actions align to optimize free cash flow.
• Develop and communicate a compelling
A cash focus does not occur naturally for all organizations. story line for the importance of cash
An effective management system is necessary to balance
competing priorities, reduce the disruptive nature of • Conduct granular analysis to understand
day-to-day business and propel the organization to achieve your performance baselines and define the
its full potential. opportunities and required actions
Our experience working with leading organizations has • Tackle organizational resistance head-on
identified a number of common critical success factors
• Establish clear goals and operational metrics
that embody leadership, teamwork, flexibility and the
application of a continuous focus in the pursuit of effective to track progress
cash management. • Align management incentives to goals
• Apply consistent management attention
and commitment

Lead from the top

Make it a clear priority for the
organization. The CEO, CFO and COO
should all participate in communicating
the importance of free cash flow.

The race never stops

Active Make it a team effort
Apply a continuous focus on cash
C-suite All functional areas (sales,
flow objectives, rather than just
leadership procurement, finance, treasury,
monthly or quarter-end periods.
operations) influence cash
Practices should be embedded in Cross-
Continuous performance. Priorities must be
planning, forecasting and day-to- functional
focus aligned to ensure the organizational
day activities. Use digital solutions coordination result is maximized.
to embed the change.
Cash-
focused
organization
Be proactive, not reactive
Measure operational activities that Act as one
are the true drivers of cash flow Cash flow Organizational People, processes and systems
performance to elevate visibility. metrics alignment must all be addressed for optimal
Incorporate predictive analytics results. Standard policies should be
to improve decisions and prevent Prioritized communicated and implemented.
risk. Enhance treasury support value-driven Consider the link between
tools to increase cash visibility initiatives performance and remuneration.
and forecasting.

Prioritize resources
Improvement initiatives and capital
deployment should be prioritized by
their impact on the business objectives.
Competing priorities and trade‑offs
should be regularly reviewed using
a portfolio-based approach.

Cash flow transformation | 3

 Proactively analyze the drivers of cash
The race to become a world-class organization never ends. Companies need to adopt
a continuous and relentless focus to address the business issues and challenges
preventing them from achieving their cash flow targets.
Leading organizations apply a portfolio-based approach, gaining visibility to problems
and how to address them, with the relevant cost-benefits, requirements and
dependencies. Resources can then be more effectively allocated to those initiatives that
both enhance cash flow and impact on the organizationʼ’s strategic imperatives.
It’ʼs important for management to have the visibility and breadth of understanding of
what needs to be addressed to make informed and unbiased decisions.

Examples of typical activities to focus on when seeking to improve drivers of free cash flow:

Align organizational focus to free cash flow drivers

Customer to cash Forecast to fulfill Procure to pay

Rapidly turn profitable sales into cash Enable a flexible and efficient value Effectively reduce the economic cost
chain to meet internal and external of purchasing and deploy capital to
customer expectations directly impact strategy

• Measure and understand customer
expectations and priorities
• Challenge pricing and discount
structures to capture the full value of
products and services
• Make use of technology and increase
collaboration to more effectively
manage uncertain demand
• Balance the competing objectives of
cost-to-serve and inventory levels
• Develop sufficient insight of
cost drivers to sustainably and
continuously reduce costs to serve
• Challenge the ‘as-is’ procurement and
sourcing strategies

• Evaluate customer profitability • Apply differentiated inventory • Directly align capital investment to
and apply differential product or management strategies to customers core business strategies rather than
service strategies and products traditional functional budgets

• Identify and eliminate revenue • Effectively manage the deployment • Determine optimized payment terms
leakages and lifecycle of the product portfolio for each supplier

• Prevent billing inaccuracies to reduce • Reduce risk through effective • Eliminate non-compliance to
inquiries and disputes monitoring procurement and payment policies

• Enforce customer contractual
agreements
• Effectively manage payment
deductions and short payments
• Effectively partner with suppliers to • Establish efficient payment
achieve cost and service targets systems that optimize timing and
transaction costs

4 | Cash flow transformation

EY can help you accelerate your improvements
We bring deep experience, methodologies and tools and
provide access to an extensive network of subject matter and
industry professionals.
We can rapidly help you identify and accelerate value
creation initiatives that will improve cash flow performance,
and help establish a change framework to prevent
organizational barriers from getting in the way.
Our support programs are scaleable and fully tailored to
provide the complementary insights and resources necessary
to your organization.
We support you through the entire improvement lifecycle
from identification and design through to implementation
and journey management:
1. Data-driven assessments to quickly benchmark
performance and identify opportunities for action using
an unbiased, precise fact base.
2. Design a detailed program, developing leading practice
approaches to realize improvement opportunities
alongside an effective governance framework.
3. Delivery support, providing knowledge and operational
know-how to help effectively implement changes and
mitigate risks.
We bring together the right people to work with you and align
our objectives and interests with yours.

1 2 3
Identify and define Design services, establish Deliver, track and
opportunities tracking and governance manage

Prioritized and sequenced initiatives

Development of information-rich Initiatives executed, benefits tracked
agreed to address business issues
improvement opportunities and change monitored
and realize benefits

• Benchmark financial and operational
performance to recognized
leading practices
• Perform data analytics and present
visual performance insight
• Facilitate ideation workshop to create
fact base for change
• Model potential improvements and
business impact
• Engage key business stakeholders
to gain buy-in
• Develop solutions and prioritize for
risks versus benefits
• Design and agree implementation
plan
• Support rapid tactical opportunity
implementation
• Develop process maps, revised
policies and Standard Operating
Procedures (SOP)
• Support or manage overall plan
• Develop predictive analytics and
dashboards linked to Enterprise
Resource Planning systems (ERP)
• Confirm effectiveness and
stabilization of re-engineered
processes and systems
• Embed new benefits and targets into
future roadmap for system, process,
and people

Change framework to enable a cash-focused culture

• Develop targeted communication
strategy
• Design change management plan
• Assist in governance and mediation
of initiative owners
• Educate employees with required
training and tools
• Commence the progress reporting
and establish the stage gate
review rhythm
• Develop innovation and ideation
mechanisms for continuous
improvement

Cash flow transformation | 5


We bring a value-centric
approach with short-term
payback and long-term effects
Making the necessary changes to enhance cash flow
management can generate significant results. But the
benefits go far beyond cash flow by providing financial
flexibility, improving operational effectiveness, increasing
customer service and reducing risk.
In the short term, tactical changes offer significant
opportunities to address value leakage. This can be
addressed through communication, policy adherence, system
fixes and process enhancements. Cash realization in the first
three to six months can provide funding for future initiatives.
More cash =
More options
On average, our engagements
generate an additional $25m-$35m
(5-7%) in cash flow for every
$500m of a company’s revenue
Every organization must constantly challenge and optimize
their business processes and structures to align with
business objectives. This will improve efficiency, lower costs
and address evolving customer needs.
Through outperformance, continuous improvement, aligned
employees and delighted customers, organizations can start
to see transformational cash flow performance.
By building momentum and enabling a cash-focused
organization, the road to world class becomes ever easier.

Typical outcomes from our projects:

• Increased free cash flow (equivalent to 5%-7% of company’s revenue)
• Increased revenue (1%-5% leakage prevented/recovered)
• Less cash tied up in net working capital (20%-25%) Transformational
shifts
• Improved cash conversion: lower days sales outstanding (15%-20%), increased days payables
outstanding (20%-25%), increased inventory turns (15%-20%)
• Optimized finished goods inventory holdings with increased service levels and lower obsolescence
• Integrated and agile value chain from supplier to customer
• Increased procurement and payment processing controls Continuous
optimization

Tactical
changes

Baseline

Short term Long term

6 | Cash flow transformation

Conclusion
Whether looking to fund growth, manage economic
headwinds or increase shareholder returns, business
strategies that are focused on maximizing free cash flow
will be critical.
Indeed, shareholders and analysts alike have increasingly
high expectations of cash flow performance. As a result,
management teams have little room for error and must
ensure the organization is focused on cash.
Top performers also prioritize addressing cultural barriers
that can cause a drag on success. By leading from the
top, management can create cross functional alignment
and buy-in to enable a step change in performance.
While it’s often overlooked, releasing cash tied up in non-
productive working capital can also provide an important
cash injection, while also driving a significant impact to
operational cash flow.
EY has a highly experienced, high-impact senior-level
team with a proven track record of helping companies
across all industries to achieve their cash flow goals.
The payback for getting it right can be significant.
Consider what more you could achieve by enhancing
your organization’s focus on cash.

Cash flow transformation | 7

EY | Assurance | Tax | Transactions | Advisory

About EY
EY is a global leader in assurance, tax, transaction and advisory
services. The insights and quality services we deliver help build
trust and confidence in the capital markets and in economies the
world over. We develop outstanding leaders who team to deliver
on our promises to all of our stakeholders. In so doing, we play a
critical role in building a better working world for our people, for
our clients and for our communities.
EY refers to the global organization, and may refer to one or
more, of the member firms of Ernst & Young Global Limited,
each of which is a separate legal entity. Ernst & Young Global
Limited, a UK company limited by guarantee, does not provide
services to clients.
For more information about our organization, please visit
ey.com/ca.
© 2016 Ernst & Young LLP. All Rights Reserved.
A member firm of Ernst & Young Global Limited.
1823415
ED None
This publication contains information in summary form, current as of the date of
publication, and is intended for general guidance only. It should not be regarded as
comprehensive or a substitute for professional advice. Before taking any particular
course of action, contact Ernst & Young or another professional advisor to discuss
these matters in the context of your particular circumstances. We accept no
responsibility for any loss or damage occasioned by your reliance on information
contained in this publication.

ey.com/ca

Contact
For a conversation about your cash flow
and working capital strategy, please
contact us:

Graeme Deans
Partner
graeme.deans@ca.ey.com
+1 416 943 2283

Tim MacDonald
Partner
tim.e.macdonald@ca.ey.com
+1 416 943 2033

Chris Stepanuik
Vice President
chris.stepanuik@ca.ey.com
+1 604 648 3610

Simon Rockcliffe
Senior Manager
simon.rockcliffe@ca.ey.com
+1 416 943 3958