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Is Your Business Growing Broke?

The number 1 reason for growing small businesses to fail is that they run out of cash!

It’s not because they have poor products or services – most were previously very successful and profitable. It’s because they don’t understand the cash conversion cycle and when a business wants to grow and scale it requires a lot of cash!

Growth Sucks Cash Bigtime!
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Once you understand what your cash conversion cycle is (in days), you can reduce it and grow the business at a sustainable rate.

The problem areas below result in a company not generating enough GROSS MARGIN DOLLARS and CASHFLOW to fund the growth of the business and scale-up.

  • Don't understand what the numbers are telling you. 

  • Product or service pricing and mix not set to the optimum level

  • Customers take too long to pay, suppliers require payment upfront - stretching your cash cycle.

  • Too much debt

  • Poor labour efficiency and utilisation

  • Accounting system not set up correctly to provide the right information to make better business decisions.

 

Solution

  • Keep It Simple

  • Keep Growing

  • Grow Profitability

You can take action by implementing the 7 Financial Levers below to increase your cash flow and reduce your cash conversion cycle days. Start with the easiest one first!

  1. Increase your prices.

  2. Increase your sales volume.

  3. Reduce your Cost Of Goods Sold (COGS).

  4. Reduce your overheads.

  5. Reduce your debtor days.

  6. Reduce your stock days.

  7. Increase your creditor days.

The cash conversion cycle is the number of days from when you first spend cash on a job for a customer to the day you receive payment for it.

 

In the example below, a business would need to fund it’s own operating expenses for over 6 weeks. If average weekly expenses were $ 10,000 it would need $64,285 in the bank to survive.

Spend Cash on Customer Job

DAY 1

Complete Customer Job

DAY 14

Invoice Customer 30 day terms

DAY 15

Customer Pays Invoice due date

DAY 45

If you need help implementing any of the 7 Financial Levers, or would like to engage a Management Accountant to guide your business back into the black...

Your Cash Conversion Cycle is 45 Days