This is a continuation of last Thursday’s post: Seeking Greater Operational Cash Flow, Part 1 . Click on the highlighted text to read it.
If your company owns or leases multiple locations, you should be tracking revenue generation and profits by location. If one or two of your locations that have been open awhile generate the vast majority of your business, i.e., 70-80%, you may want to close the other locations, unless those locations are highly strategic. This will reduce your overhead costs by eliminating the rent, utilities, administrative staff and more for those locations. If your lease still has a year or two on it, consider subleasing the space to another entity.
If you decide that the location is strategic even though it does not currently generate much revenue, consider streamlining to the bare minimum. You could establish a mobile venue such as a kiosk if you are a retailer or you can sublease from another business that has available space. Another option is to rent a collocating space such as WeWork, in which you only pay for what you need and use. Eliminating some of your overhead costs frees up operational cash flow. In addition, this converts more of your expenses from fixed to variable. Variable expenses are more closely tied to business ups and downs and thus are easier to manage.
If you stock inventory, you need to ensure that your current inventory reflects what is selling. If your inventory is old – the shelf life depends on your industry but typically “old” is over 6-12 months, you need to get rid of it. Depending on the type and quantity of old inventory, you could have a large sale, sell it to a liquidator, or use an auction house. Your cash is tied up in your inventory so selling your inventory generates operational cash flow.
You also need to install tracking mechanisms and then use the information to make good decisions about what inventory to buy and when. Otherwise you will perpetuate the mistake of holding too much cash in inventory for too long. In addition, you may be able to reduce your storage space – and thus reduce your overhead – if you do not need as much space to store obsolete inventory. Make sure what is primarily stocked in your inventory is what is actually selling. Are you properly selling and marketing your products? Has demand changed? Inventory takes up space that you can make better use of if there is no turnover of that inventory.
To generate more operational cash flow, look at multiple areas of your operations that could produce cash through streamlining or other changes. If you tie commission to gross revenues, you could end up only breaking even or worse, losing money, on each sale. To produce more operational cash flow, tie your commissions to gross profits and refrain from paying commissions until customers remit payment. Consider independent representatives if sales have lagged or are on autopilot. To increase cash flow by reducing overhead, consider reducing your number of locations or consider more flexible options. To generate more cash flow from inventory, sell off or liquidate all inventory classified as old and develop an aggressive, cash-flow supporting inventory policy.
Here at The Resourceful CEO, we specialize in helping you to tap resources to build a high cash flow, high value business. If you are encountering cash flow issues and need further assistance, please contact us or join our membership site.