How They Accelerated Receivables and Transformed Their Cash Flow
by Erika Napoletano
When it comes to business, we all know how we like our cash: flowing, and in a positive direction. With this in mind, we sat down with two savvy businesses that took steps to transform their cash flow so we could take advantage of their knowledge.
With the new year looming, now is an ideal time to transform your company's cash flow in a better direction. So, we talked to a pair of experts, Shayne Fitz-Coy, co-CEO of Alert 1 and William Bauer, Managing Director of Royce Leather Gifts.
With these two companies sharing their cash flow transformation paths and strategies, there's lots you can learn to benefit your company. There's much to be said for stealing a page from someone else's playbook — especially when it means giving your company the cash flow boost it deserves.
What made your company look at strategies to accelerate your cash flow?
Fitz-Coy: We took over a company at a crossroads. The firm wasn't going out of business, but it wasn't profitable either. The whole enterprise was sort of bobbing along. Honestly, I think there are a lot of companies out there that suffer from what my partner and I describe as “Big Company Disease." We wanted to turbocharge the company and offer a better place for customers, employees and shareholders alike.
Bauer: We had put a lot of money into R&D for our fingerprint-scanning briefcases and wallets and iris-scanning luggage, but in order to further develop those plans and bring our futuristic concepts to life, we had to remove ourselves from the dead weight loss of poor merchandising and production mistakes.
What actions did your company specifically take to accelerate your cash flow?
Fitz-Coy: First, we had a company meeting where we were candid with how things were going. People appreciated the candor. Afterward, we established a suggestion bin that elicited ideas to improve revenue and reduce spending. You'd be surprised at what folks come up with when asked for their best ideas.
We then formed a group to turn these ideas into process improvements at the company. Not a manager group, but a peer group that could wrestle with the best ideas and put them into practice.
We started looking ahead and got fascinated by zero-based budgeting. ZBB assumes that whatever you spent this year can't just roll over to next year. You have to justify all spending from zero on up. When we started doing this, all my P&L managers started uncovering things that they didn't need. It added up very quickly. The result is that our entire company's cash flow competency went up. Everyone – from the frontline to managers — is better at executing all the actions that contribute to improved cash flow.
Bauer: We recognized the burdensome opportunity cost of holding onto excess merchandise from previous seasons (secretly hoping that this would be the year we would finally sell through), from both a cash perspective as well as in terms of warehouse space being used. We factored in the square footage being used to store the merchandise and multiplied it by our warehouse lease price. From there, we leveraged e-commerce flash sale sites and off-price retailers to purchase our goods in bulk in exchange for highly discounted costs.
What kind of data can you share with us about how those changes have improved your company's cash flow?
Fitz-Coy: We kicked off and funded an entire employee profit-sharing plan with the improvements we banked in year one. Each team member will receive a meaningful monthly check in addition to their regular pay. The improvements will also provide a big childcare subsidy for all employees who need it.
Bauer: The liquidation and flash sale methods we utilized translated into a 33 percent increase in the operating cash flow to sales ratio, as well as a 42 percent increase in free cash flow to operating cash flow ratio. We are now in a position to purchase a larger warehouse, while simultaneously decreasing our usage of our credit limit.
If you could give other companies advice on shifting their cash flow, what three things would your recommend?
Fitz-Coy: First, engage everyone. Your best people know what to do, no matter what level of the organization. Give them positive reasons to speak up. Next, harness their contributions to company results. Create task forces and provide the necessary training so the ideas come to life. Finally, reward the team. Make the results matter to them personally. It's amazing that when you share, the pie grows quickly and everyone wins.
Bauer: Utilize bartering and transform merchandise and physical goods into cash equivalents when there are opportunities for gifting your mailman, service providers, etc. Provide incentives for early payments and ask for discounts for paying earlier from your suppliers. Do not be liberal with extending credit. Ask for a credit card instead of Net 30 day terms whenever possible so that both parties are mutually benefitted.
About This Author
Erika Napoletano is an author, columnist, speaker and branding strategist, hailed by Forbes as a “spinless spin doctor.” She's a twice-published author, including The Power of Unpopular (Wiley 2012), a columnist for American Express OPEN Forum, an acclaimed speaker from TEDx Boulder 2012, and speaks at conferences across the U.S. on the inherent power of truth in business… or as she refers to it, the power of unpopularity.
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