Strategies to Unlock Liquidity

New to finance? Then this post is for you: A founder once told me, "We're killing it on sales so why's our bank balance empty?" Turns out, their cash was trapped in inventory and overdue receivables. They weren't tracking true cash flow, which led us to build a real-time cash model. Now? No more surprises just control. Most people overcomplicate this, but three simple formulas changed everything: 1- Operating Cash Flow = Net Income + Depreciation + Working Capital Changes This saved my client $200K. We found they were getting paid in 68 days but paying suppliers in 30 days. So we negotiated both to 45 days, making cash flow predictable. 2- Free Cash Flow = Operating Cash Flow - Capital Expenditures Meanwhile, they were spending $30K monthly on equipment with only $25K coming in. By spreading purchases over 6 months instead of 3, they suddenly had breathing room. 3- Working Capital = Current Assets - Current Liabilities Their $150K working capital looked great, but it was all tied up in slow inventory. After implementing just-in-time ordering, we freed up $60K immediately. The result? Launch day went smoothly. No sleepless nights about payroll.  No emergency borrowing. Track these weekly, and your business will thank you. If you like this post, follow Gary Jain 🚀 for more such content. #cashflow  #finance #accounting 

𝗥𝗲𝗱𝘂𝗰𝗲 𝗖𝗮𝘀𝗵 𝗖𝗼𝗻𝘃𝗲𝗿𝘀𝗶𝗼𝗻 𝗖𝘆𝗰𝗹𝗲 𝗮𝗻𝗱 𝗜𝗺𝗽𝗿𝗼𝘃𝗲 𝗟𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆 Many of the companies I work with, large, midsized, small and startups, are all concerned about cash flow and working capital. Managing cash flow and working capital efficiently provides companies with a degree of resilience against internal and external events. One of the financial strategies I like to look at linked to cash flow and working capital is the Cash Conversion Cycle. By reviewing the way cash flow and working capital is managed, the Cash Conversion Cycle can financially strengthen their business and build shareholder value. To do this, there are three key levers: 1.) 𝗥𝗲𝗱𝘂𝗰𝗶𝗻𝗴 𝗗𝗜𝗢: Establishing lean procurement and production processes is an effective way to reduce the Cash Conversion Cycle. Inventory management software allows companies to reduce the DIO and minimize warehousing costs. By leveraging the data available from sales trends, accounts receivable, and other inventory KPIs in the database, inventory can be optimized in line with the existing demand to calculate the right amount of inventory to have on hand.   2.)  𝗥𝗲𝗱𝘂𝗰𝗶𝗻𝗴 𝗗𝗦𝗢: Adjusting the lengths of Accounts Payable and Receivable and increasing the Days Payable Outstanding can go a long way in shortening the Cash Conversion Cycle.   To accelerate receivables, companies need to do two things to improve their DSO. First, make their internal receivables processes the most efficient it can be. Work closely with the Accounts Payable and Receivable department to streamline their process. Second, by taking advantage of tools to capture and process data more quickly, and make it easier and more convenient for customers to pay. 3.) 𝗜𝗻𝗰𝗿𝗲𝗮𝘀𝗶𝗻𝗴 𝗗𝗣𝗢: To extend DPO (i.e., increase the use of supplier credit) is a common way to improve the Cash Conversion Cycle. Procurement decisions are squarely within a company’s control, and finance is able to determine when to make payments to suppliers. Moreover, it can often be easier, especially for larger organizations, to impose longer payment terms on smaller suppliers than to identify efficiencies elsewhere. More generally, while it is good for the company’s own working capital position to delay payment as long as possible, also, consider the impact of delaying payment on its own supply chain.  Generally, the cash-to-cash cycle time benchmark is 30 to 45 days — and the fewer days, the better. A shorter Cash Conversion Cycle can generate more cash from operations, reduce working capital costs, improve liquidity ratios, and help you respond faster to market changes and customer demands. #business #finance #cashflow #workingcapital ________________________ Thanks for checking out my Post. Please share your thoughts in the comments ➕ Follow me for more business finance insights

Ever felt like you have a closet full of clothes but nothing to wear? In the electronics manufacturing world, it's having shelves brimming with parts but missing that one piece that makes everything come together. 🤔 And just like in fashion, one missing item can leave capital – aka your hard-earned cash – hanging. Understanding and effectively managing the cash flow involved in these scenarios is critical. Here are three key areas of focus and ways to enhance them: ✅ Time from Invoice to Cash - This is the period between when you issue an invoice and when you receive payment. To improve this: - Consider requesting a portion of the payment in advance for a discount. - Adjust your pricing to reflect current market conditions. - Enhance your collection efforts or implement stricter payment terms. 🔁 Time from Stock to Sale - This is the time it takes to turn your inventory into a sale. To streamline this: - Aim to sell or return outdated or surplus inventory. - Prioritize production processes that can quickly free up capital. - Select vendors based on the total cost of ownership, not just the upfront price. 💵 Time from Acquisition to Payment - This is the grace period your suppliers give you to pay them back. To optimize this: - Negotiate better payment terms with your suppliers for increased business. - Consider adopting vendor-managed inventory programs. Keep an eye on early shipments as you may end up paying sooner than needed. By effectively managing your inventory and cash flow, you can maintain liquidity and profitability in your business. Remember, the goal is not just to work harder but to work smarter! 💡💼