How To Find Cash You Didn't Even Know Existed
What are the key elements of your business’ economic engine and how it is performing? Are there changes that need to be made to improve, optimize or increase its output? How can you tune your core business engine to scale your company?
Start by looking at your Cash Conversion Cycle.
What is your Cash Conversion Cycle? It is the amount of time it takes from the moment you spend your first dollar on a sales or marketing activity until you put that dollar back into your bank account after the sale of your product or service.
There are four elements to a Cash Conversion Cycle: 1) Sales, 2) Make/Production & Inventory, 3) Delivery, and 4) Billing & Payment. You need to start thinking about ways to accelerate cash in all four areas. And YES, each of you can find ways to improve cash flow through a thorough analysis of a Cash Conversion Cycle for your company.
By understanding your Cash Conversion Cycle, you can employ cash acceleration strategies to increase your cash flow by decreasing that Cash Conversion Cycle.
What are some cash acceleration strategies? Look at each of the four elements separately. Start with Sales and brainstorm How can we eliminate mistakes in the sales cycle? Once you get your ideas on paper, prioritize them. Then ask the same question of Make/Production & Inventory. Once your ideas are on paper and prioritized, follow the same process with Delivery and finish with Billing & Payment.
Next, brainstorm How can we shorten cycle times? Methodically follow the same sequence and process above, working through all four elements.
Your final brainstorm is How can we change or improve our business model? Once again, follow the same sequence and process.
Costco offers an innovative example of how a company can increase cash flow without outside financing by changing their business model. They broke away from primary competitor Sam’s Club with a game changing innovation by implementing an annual membership fee for its customers to shop in the Costco warehouse stores. It was a risky decision at that time but now a very profitable business model innovation.
The membership fees now account for 75% of Costco’s profit and is the financing mechanism for the opening of new stores. By modifying their business model, they created a cash acceleration strategy for growth.
Want to know more about how you can increase cash flow by changing your business model? Email me at firstname.lastname@example.org.