Where Do You Look For Cash In Your Business?
One of the top issues for the majority of businesses large and small is cash
. There is never enough whether in the form of credit availability or cash flow.
So where do you look fore cash within your business? What do you really have control over that can improve cash flow?
There are a few ways a business owner or CEO can improve their cash position quickly.
1. The one that most go to instinctively is to stretch out payments to suppliers. This is a two edged sword however because sooner or later they begin to limit you ability to do business. A planned and communicated move from paying in 30 days to say 45 days can be an effective way to generate free cash in the short term.
2. The second place to look is inventory. Quite simply inventory is cash sitting on the floor of your warehouse waiting to be converted to sales. The faster you can turn inventory into sales the faster you can collect on the invoice. In my career I have seen numerous companies where this problem becomes severe, either through too much inventory or the wrong inventory resulting in slow moving sales. If it hasnt moved, get rid of it. Even selling it at a discounts is better than nothing, Recently I met with a company that sold reconditioned components for the auto repair industry. They were about a $6MM dollar business and had a huge dollar amount of slow moving cores, or assemblys waiting for repair. They saved money by only starting the refurbishment process after they received an order. In order to deliver quickly they had thousands of different part numbers sitting on the shelf waiting for orders, about 50% of which hadnt moved in two years or more. They prided themselves on being one of the few companies in the U.S. that had hard to find parts. When I asked them if they were able to charge a premium for their service the answer was no. Then why do it? Their lender, who asked me to look at the business, was to say the least not happy.
3. Another place to look is at accounts receivable, simply getting paid within terms. It amazes me how many companies are afraid of losing a customer if they aggressively seek payment on whats owed them.
4. The less obvious place to look is quality. Rework, waste, returns are a huge waste of cash. You spend money on material, labor, and time to deliver a product and you not only collect nothing for it, you generate a customer complaint. Often a second order has to be filled at an expedited rate to replace the original one.
So where do you look to improve cash flow? Before you look outside and incur interest charges, bank fees etc. you should clean up your internal issues first.
Most companies waste more cash internally than they ever realize, and because they do things the way theyve always done them, its hard for them to recognize the opportunities.
by: Martin Harshberger, President, Measurable Results LLC
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