Did you ever wonder where all your cash goes? The usual suspects are payroll, product and service expenditures, overhead expenses and computer / website costs. Sales and marketing expenses are seen as necessary and accepted but may not be generating enough value. For many privately owned and family businesses the culprits are often subtle. Are your “best” customers slowing down their payments? Are they finding reasons to delay routine payments? Are you having more returns than usual? Often these are the early warning signs that sales processes and procedures need updating or corrected. These back-office practices are many times the root cause of real problems that show up as “cash leakers”. If left alone, your strong and steady cash flow will become a trickle.
Another cash flow “leaker” is inventory. Most owners and managers are focused on the “bottom line” and tend to overbuy inventory to achieve a lower cost with hopes of higher profitability. While this seems like a good theory, it normally does not work well in practice. If you save 10% on the original purchase, then anything that goes wrong (damage, obsolescence, spoilage,) as well as the cost of storage, retrieval, opportunity cost of money, etc. reduces the savings. All of these costs have been estimated by the University of Tennessee-Center for Industrial Services to be approximately 30%. So, unless your company drop ships directly to customers or turns inventory like Amazon or Walmart, your “savings” has turned into an extra cost.
One of the value-added strategies we offer is to advise Clients on how to evaluate strategies to improve their businesses. We want to help find your Cash and grow your business.
