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Keep the Cash Flowing seminar
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- 2. UNCLASSIFIED UNCLASSIFIED Welcome Introduction to Seminar Whatdo you hope to learn in the next two hours: Burning issues? Topics of interest? Opportunity to network Have fun!
- 3. UNCLASSIFIED UNCLASSIFIED Keep the CashFlowing Cash is KING! Without cash your business will not survive Chasing cash takes time Managing cashflow is about day to day operations You need to understand your key cashflow drivers
- 4. UNCLASSIFIED UNCLASSIFIED Topics for today’sseminar Profit versus Cash Working Capital Cycle Cash Conversion Cycle Suppliers and cashflow Improving your customer collections Managing stock for improved cashflow Marketing and cashflow Tips for improved cashflow
- 5. UNCLASSIFIED UNCLASSIFIED Profit versus Cash PROFITDOES NOT EQUAL CASH! A profitable business can still have cashflow issues Profit - is the amount remaining after total sales value less costs for stock and all other expenses – excludes GST Cash - is generated from all cash inflows less all cash outflows – includes GST
- 6. UNCLASSIFIED UNCLASSIFIED Profit versus Cash ProfitCash GST Principle loan repayments Interest loan repayments Proceeds from sale of assets Depreciation
- 7. UNCLASSIFIED UNCLASSIFIED Profit versus Cash Thelink between profit and cash is timing This is called a “working capital cycle” Product/ Manufacturer Provider Service Provider
- 8. UNCLASSIFIED UNCLASSIFIED Profit versus Cash Thequicker you go the faster you get there! Watch every step in the cycle to increase cashflow. The shorter the cycle = more liquidity in your business.
- 9. UNCLASSIFIED UNCLASSIFIED Cash Conversion Cycle Purchasefrom Supplier Purchase from Supplier Pay Supplier Collect cash from customer Cash Out Cash In Day 1 Day 100 Trading cycle Make the sale to customer Collect cash from customer Average Stock Days = 60 Days Average Debtors days = 40 Days Average Creditor Days = 30 Days Cash conversion cycle = 70 Days
- 10. UNCLASSIFIED UNCLASSIFIED Cash Conversion Cycle AverageStock days +60 Average Debtor Days +40 Average Creditor days = -30Cash Conversion Cycle = 70 Days Use the table and diagram on page 9 to calculate your cash conversion cycle.
- 11. UNCLASSIFIED UNCLASSIFIED Supplier Management Often onstart up, cash payment Once up and running, negotiate improved terms Make full use of terms
- 12. UNCLASSIFIED UNCLASSIFIED Supplier Management Hint Settingup good management procedures will ensure that you get the most out of your suppliers
- 13. UNCLASSIFIED UNCLASSIFIED Supplier Management 1. Supplierselection 2. Payment terms 3. Managing relationships
- 14. UNCLASSIFIED UNCLASSIFIED 1. Supplier Selection Whatis your priority from supplier? Prepare a list of preferred suppliers Credit check all suppliers Regularly compare supplier pricing and service One main supplier, ensure a back up available
- 15. UNCLASSIFIED UNCLASSIFIED 2. Supplier Payment Negotiatepayment terms before you order Enter standard terms on order Understand the cost of taking a discount for early payment Fully utilise your payment terms - ensure no early payments Agreed process for damaged or return goods Review the terms with each supplier regularly
- 16. UNCLASSIFIED UNCLASSIFIED 3. Supplier Relationships Meetregularly Adhere to payment terms Procedures for late payments Communicate when delay in payment Solid, reliable customer
- 17. UNCLASSIFIED UNCLASSIFIED Improved Cash ConversionCycle Average Stock days +60 Average Debtor Days +40 Average Creditor days = -30Cash Conversion Cycle = 70 Days Original trading days = 100 days Improved cash conversion days = 55 days If we are able to extend supplier payment terms from 30 days to 45 days Average Stock days +60 Average Debtor Days +40 Average Creditor days = -45Cash Conversion Cycle = 55 Days
- 18. UNCLASSIFIED UNCLASSIFIED Supplier Management Tips Extendpayment terms Payment terms commence after delivery of satisfactory goods receipt of credit note Structured payment run Tight controls over early payment over payment duplicate payment Continually review supplier contracts On page 10 make some notes on how to manage your suppliers for improved cashflow
- 19. UNCLASSIFIED UNCLASSIFIED Managing Debtors Credit salesties up cash Wasted effort and time in chasing payment Increased risk in bad debt
- 20. UNCLASSIFIED UNCLASSIFIED Managing Debtors Hint Ensurethat you have good procedures in place to encourage prompt payment.
- 21. UNCLASSIFIED UNCLASSIFIED Managing Debtors 1. Creditcontrols 2. Payment terms 3. Managing customer relationships Page 19
- 22. UNCLASSIFIED UNCLASSIFIED 1. Credit Controls Creditcheck all customers before sale Rank by credit risk Set sales limits according to credit risk Regular review of credit risk Record outstanding payments exceed limits
- 23. UNCLASSIFIED UNCLASSIFIED 2. Customer PaymentTerms Include terms on each invoice Communicate terms to all staff Have late payment procedures Policy and procedures for returned goods
- 24. UNCLASSIFIED UNCLASSIFIED 3. Customer Relationships Meetregularly Review actual payment with terms Act quickly for disputed goods/services If delay in delivery, notify immediately Solid, reliable supplier
- 25. UNCLASSIFIED UNCLASSIFIED Improved Cash ConversionCycle Average Stock days +60 Average Debtor Days +40 Average Creditor days = -30Cash Conversion Cycle = 70 Days Original trading days = 100 days Improved cash conversion days = 60 days Shorter trading cycle = 90 days If we are able to reduce customer collection times from 40 days to 30 days Average Stock days +60 Average Debtor Days +30 Average Creditor days = -30Cash Conversion Cycle = 60 Days
- 26. UNCLASSIFIED UNCLASSIFIED Managing Debtors Tips Invoiceearly Provide incentives to pay early Make payment easy (payment options) Pay commission on amounts collected Review outstanding payments regularly
- 27. UNCLASSIFIED UNCLASSIFIED Managing Debtors Tips Identifyslow paying customers and contact Offer payment plan Stop supply Document all communication Sack the customer! On page 13 make some notes on how to improve your cash collection from your debtors.
- 28. UNCLASSIFIED UNCLASSIFIED Stock Management Optimum levelto ensure that customers needs are met Minimum level of excess/aged stock Holding cost of stock Strong controls to avoid theft
- 29. UNCLASSIFIED UNCLASSIFIED Stock Management Hint Settingup good stock control procedures will ensure that cash is not tied up in holding stock unnecessarily.
- 30. UNCLASSIFIED UNCLASSIFIED Stock Management Efficient stockcontrol requires a three step process: 1. Stock review 2. Buying policy 3. Operational issues
- 31. UNCLASSIFIED UNCLASSIFIED 1. Stock Review Currentlevel and value Which are the good sellers? Which provide the highest margin? List slow moving, excess and aged stock Update stock records
- 32. UNCLASSIFIED UNCLASSIFIED 2. Buying Policy Identify'core' stock Know what levels to order Beware of discount offered Negotiate with suppliers
- 33. UNCLASSIFIED UNCLASSIFIED 3. Stock Management Supplierservice Advertising and promotion Sales policy Delivery Any others?
- 34. UNCLASSIFIED UNCLASSIFIED Improved Cash ConversionCycle Average Stock days +60 Average Debtor Days +40 Average Creditor days = -30Cash Conversion Cycle = 70 Days Original trading days = 100 days Improved cash conversion days = 60 days Shorter trading cycle = 90 days If we are able to reduce number of days holding stock from 60 days to 50 days Average Stock days +50 Average Debtor Days +40 Average Creditor days = -30Cash Conversion Cycle = 60 Days
- 35. UNCLASSIFIED UNCLASSIFIED Stock Management Tips 'Justin time' delivery Move excess or aged stock quickly Keep accurate records Regular stock count Understand your stock Use a financial system to track stock On page 16 make some notes on how to manage stock for improved cashflow
- 36. UNCLASSIFIED UNCLASSIFIED Improved Cash ConversionCycle Average Stock days +60 Average Debtor Days +40 Average Creditor days = -30Cash Conversion Cycle = 70 Days Average Stock days +50 Average Debtor Days +30 Average Creditor days = -45Cash Conversion Cycle = 35 Days Original trading days = 100 days Improved trading days = 80 days Cash conversion cycle reduced by 50%
- 37. UNCLASSIFIED UNCLASSIFIED Marketing and Cashflow Improvecashflow with marketing Know your target market What problems are you solving? Regular marketing Data base Bundle sales
- 38. UNCLASSIFIED UNCLASSIFIED Marketing and Cashflow Improvecashflow with marketing Answer every phone call Follow up on every enquiry Value your current customers Have a “call to action” Measure the success of your marketing On page 19 make some notes on how you can use your marketing to improve cashflow.
- 39. UNCLASSIFIED UNCLASSIFIED Tips for improvedcashflow Page 20 has a list of tips to improve your cashflow. On page 21, list 5 activities to take back to your business to improve your cashflow.
- 40. UNCLASSIFIED UNCLASSIFIED Todays Top Tips Profitdoes not equal cash Cash conversion cycle is time it takes to move through working capital cycle Improving the management of suppliers, customers and stock will make the cash conversion cycle shorter Marketing and cashflow go hand in hand
- 41. UNCLASSIFIED UNCLASSIFIED List 3 actionsyou will follow through with as a result of this workshop Then List 3 things that you’ve learned in this seminar List 3 actions you will follow through with as a result of this seminar List 3 things that you’ve learned in this seminar
- 42. UNCLASSIFIED UNCLASSIFIED Business mentors helpyou to identify a clear direction for you and your business. Business mentors can also advise you on how to: conduct market research work out your break-even point price and/or cost your products or services develop an effective marketing strategy use other business management tools To arrange a free mentoring session with a business mentor complete the evaluation form and select FREE Mentoring Session on page 2. You will then receive an email with details on claiming your free mentoring session. FREE mentoring session
- 43. UNCLASSIFIED UNCLASSIFIED Questions? Thank you forattending Check out business.vic.gov.au/events for more workshop information