The Hackett Group

Challenge

It is often said, you can lose money for some time, but you only run out of cash once. The impact of ineffective cash management can be complex and just as debilitating for a business. The inability to fund needed investments in the core business, degradation of profits from excessive interest rates and higher costs of capital from increased balance sheet risk are just a few of these issues.

Freeing up excess working capital is the cheapest form of financing. Therefore, know where the hidden piggy banks are buried within your organization. According to REL, the working capital division of The Hackett Group, there is a tremendous amount of cash unnecessarily tied up in the typical company's working capital. Indeed, the typical $22 billion Global 1000 company has an average of $2.9 billion in excess working capital, compared to companies that have achieved upper-quartile performance in their industries. Top performing organizations are able to free up $2.9 billion more in working capital than the typical Global 1000 organization.

Hackett Solution

The Hackett Group's 2007 Working Capital Survey, conducted by Hackett's working capital division (REL) and CFO magazine, found diverging trends in the US and Europe. In the US, decreases in working capital stalled for the first time since 2001. European-based companies achieved their best working capital performance in five years. Hackett estimates that in the US, there is $877 billion in excess working capital that remains untapped by companies and in Europe, €725 billion.