Business
Finance
Business Management
Management
Financial Management
Operations Management
Operations
Metrics
The #1 reason companies fail:
Cash flow issues.
Track this metric to thrive: π§΅
Cash flow issues.
Track this metric to thrive: π§΅
There are 2 types of operators:
Those who...
1. Track everything
2. Track nothing
Whether ignorance or information overload - neither is ideal.
Instead, choose fewer, but more meaningful KPIs.
Those who...
1. Track everything
2. Track nothing
Whether ignorance or information overload - neither is ideal.
Instead, choose fewer, but more meaningful KPIs.
Cash Conversion Cycle (CCC) is simple, but has far reaching application - that's why I like it.
The info can be applied to:
1. Finance
2. Operations
3. Customer Management
One centralized KPI keeps departments working together.
The best part?
It's centered around cash
The info can be applied to:
1. Finance
2. Operations
3. Customer Management
One centralized KPI keeps departments working together.
The best part?
It's centered around cash
What is CCC?
The time (in days) it takes a dollar to go from product or service to cash in the bank.
Note: CCC is used for inventory investments, but the service equivalent is called:
Service-to-Cash Cycle.
Same principles, so we'll use CCC for simplicity.
The time (in days) it takes a dollar to go from product or service to cash in the bank.
Note: CCC is used for inventory investments, but the service equivalent is called:
Service-to-Cash Cycle.
Same principles, so we'll use CCC for simplicity.
How is it measured?
In days, and...
Above 0 = longer to sell & collect cash than to pay vendors.
Below 0 = faster to sell & collect cash than to pay vendors.
The lower, the better.
Higher numbers indicate current or future cash flow issues.
In days, and...
Above 0 = longer to sell & collect cash than to pay vendors.
Below 0 = faster to sell & collect cash than to pay vendors.
The lower, the better.
Higher numbers indicate current or future cash flow issues.
Though typically a financial metric, it has use as a company-wide measuring stick.
How is it used across departments?
How is it used across departments?
FINANCE:
Strong CCC means there is cash to fuel growth.
Without it, growth must be financed.
It's risky - with larger receivables, comes larger payables.
When bills are due & there's no cash...
You know what happens.
Strong CCC means there is cash to fuel growth.
Without it, growth must be financed.
It's risky - with larger receivables, comes larger payables.
When bills are due & there's no cash...
You know what happens.
Long A/R cycles are interest free loans to customers that bear opportunity cost.
Make cash collection a priority & finance teams can analyze new opportunities instead of restructuring debt.
Make cash collection a priority & finance teams can analyze new opportunities instead of restructuring debt.
OPERATIONS:
Collecting cash quickly is a function of operational efficiency.
Product/service, sales, A/R, & A/P teams must be working together with accurate and timely information.
This is easier said than done.
Low CCC = effective management.
Collecting cash quickly is a function of operational efficiency.
Product/service, sales, A/R, & A/P teams must be working together with accurate and timely information.
This is easier said than done.
Low CCC = effective management.
RELATIONSHIP MANAGEMENT:
Getting great payment terms from customers & vendors requires quality relationship management.
Consistency, reliability, & being liked will dramatically improve the cash position.
Treat them well and be clear with expectations.
Getting great payment terms from customers & vendors requires quality relationship management.
Consistency, reliability, & being liked will dramatically improve the cash position.
Treat them well and be clear with expectations.
So, how important is CCC?
Extremely.
Harvard Business Review credits a negative CCC for Amazon's survival of Dot Com bust.
By collecting before spending, sustainable growth was possible.
Competition was financing product purchases, hoping to collect.
A viscous cycle.
Extremely.
Harvard Business Review credits a negative CCC for Amazon's survival of Dot Com bust.
By collecting before spending, sustainable growth was possible.
Competition was financing product purchases, hoping to collect.
A viscous cycle.
How can you implement in your small business?
With my SEO company, Bright Line Media, I collect cash 21 days before I owe vendors.
It wasn't always this way.
I once paid a vendor 2X before getting paid and it prompted change.
Here's what I did:
With my SEO company, Bright Line Media, I collect cash 21 days before I owe vendors.
It wasn't always this way.
I once paid a vendor 2X before getting paid and it prompted change.
Here's what I did:
I called customers and switched:
1. Payment date to the 5th
2. Must pay via Stripe
3. NO physical checks
Receivables, solved.
1. Payment date to the 5th
2. Must pay via Stripe
3. NO physical checks
Receivables, solved.
Next, I called my vendors:
I negotiated better payment terms by always paying on time & promising to pay via ACH (no fees).
Payment Date 26th.
21 Days from collection to payment.
New sales enter into this cycle & never incur an out of pocket cost.
I negotiated better payment terms by always paying on time & promising to pay via ACH (no fees).
Payment Date 26th.
21 Days from collection to payment.
New sales enter into this cycle & never incur an out of pocket cost.
Cash Conversion or Service-to-Cash Cycles change the fortunes of a business quickly.
Quick Summary:
1. Don't overproduce / hire
2. Collect cash quickly
3. Set consistent payable cadence
4. Cross department communication
Build a healthy company - on the cash you're owed!
Quick Summary:
1. Don't overproduce / hire
2. Collect cash quickly
3. Set consistent payable cadence
4. Cross department communication
Build a healthy company - on the cash you're owed!
Lastly, I recommend having an accountant or CFO do the math - accuracy is critical.
If you found this helpfulβ¦
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Follow me @barrettjoneill for content on business and growth.
Please like and RT the tweet below so others can find it!
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