Did you know that your cash conversion cycle (CCC) says more about your brand’s health than the $XX millions you made in sales?
Many founders have grown seven-figure-a-year brands with a good product and a healthy dose of grit, but have ultimately failed when all the revenue needed to be funneled into paying back debt.
With strong cash management, you can bootstrap your brand. This means more $$$ in your pocket (today and if you exit in the future).
So what’s the key to getting there?
A negative CCC.
Cash conversion cycle defined…
1. Negative CCC: This is when your inventory is sold and cash is collected before you pay your suppliers. Your suppliers are therefore the ones to finance your operation.
2. Positive CCC: You need cash to finance your business
Here’s our completely obvious 4-point plan to shorten your CCC:
1. Calculate your CCC
CCC = Days of Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payables Outstanding (DPO)
- DIO: The time it takes to sell your inventory
- DSO: The time it takes to collect receivables
- DPO: The time you have before paying your bills
2. Improve inventory turnover
To improve DIO you need to:
- Improve the sales process and marketing
- Improve customer experience
- Minimize SKU count to simplify demand planning
- Optimize distribution and lead times
3. Get customers to pay you faster
Find the sweet spot between receiving your money quicker and keeping your customers from trying alternatives.
- Offer more payment options
- Tighten up invoicing
- Communicate clear payment terms
- Offer prepay discounts
4) Pay your suppliers later
Not only can you receive your money quicker, but you can also arrange to pay your suppliers later.
- Renegotiate longer payment terms
- Don’t pay suppliers early
- Use a credit card or financing option with longer payment terms
Having easy access to accurate real-time financials is key to keeping your finger on the pulse of your CCC.
Watch the immediate financial impact of your actions and make real-time decisions to shorten your CCC using Finaloop.
We are a technology company providing automated end-to-end accounting service to ecommerce businesses. Our system connects to your apps, syncs all your data and reconciles your books in real-time, replacing your bookkeeper, your accounting software, and your ecomm integrations. We offer reconciled books available 24/7, tax-saving insights, and a single place for all your financial data.
*The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.*