Using Cash Flow to Grow

Guest Post: Mike Pratt, Global Cash Flow Manager

Out of everything that’s been written about managing cash, what one idea—if implemented— would make the greatest difference in your business?

These 2 questions provide a clue:

  • How much cash does your company have right now?
  • How much do you expect to have in 6 months?

Having a solid grasp on these numbers tells you how you’re doing. If you don’t know the answers, this article is for you.

Managing Cash Flow

Essential to having a successful business is knowing how much money is coming in and how much is going out. This is where the idea of “cash flow” comes from. Your money is moving from one place to another.

If you don’t know where it’s flowing to, you are blind and can’t make any strategic business decisions. And if more is going out than coming in, you’re in trouble.

Awareness of spending is the first and most important step in managing your cash. You can’t manage what you don’t measure.

Why focus on cash and not profit?

Because cash is what you put in the bank. Profit tells you if you’re bringing in more than you are spending. There is a time and place for everything, but for now we are focusing on cash.

Having cash and profit is the best scenario. You can have cash without profit, but not for long. Profit without cash doesn’t do you much good either but it’s better than no cash and no profit.

Put simply: you spend cash, but you can only report profit.

If you can’t see where your money is going you can’t decide if there’s a better use for it somewhere else.

It’s better to manage things now than when you hit a cash crunch and have to manage costs. You may not have enough time to get a loan and being strapped can make it hard to find people willing to lend you money.

Building a Cash Model

Building a simple cash model for your business can go a long way towards keeping you in the black. It is a powerful tool for helping you stay on track.

A cash model is different than a cash flow statement.

A cash model lets you change different inputs to see what the effect is on your cash position. Expect some big expenses in a couple months? This lets you see the potential impact to your business. Will you have enough cash? If not, what can you do now to help get you through?

You don’t need special software; a simple spreadsheet will work. You will need a way to update it with your cash ins and outs. If you have all your transactions handy you can probably build one in an hour or two.

Cash model entries are on a cash basis. This is not accrual accounting. Each transaction is entered in the period it occurred. You cut a check for inventory on March 3? You enter the expense on March 3. You make a loan payment on the 15th of each month, that’s when it’s recorded.

You can track your cash on a daily, weekly, or monthly basis. This will depend on how far ahead you want to look and how closely you need to manage your cash. Looking at short-term needs (a week or two out to 2-3 months) requires greater detail (i.e., daily or weekly), but looking farther out to a year it might make sense to do it by month.

Cut Waste to Grow

Modeling the cash flows of your business helps you identify waste. Knowing where to cut costs is sometimes more effective than generating sales. If you keep 1/10 of what you sell, then you have to sell $100 to get $10. But eliminating $10 of waste is the same as generating $100 in sales.

Tracking and forecasting your cash needs also:

  1. help you plan ahead and avoid surprises
  2. help you avoid having to say “the check is in the mail”
  3. lower your borrowing costs by letting you know exactly how much you need
  4. help you negotiate better terms for loans because you can set them up before you have to go hat-in-hand

SCORE has a cash flow template you can modify to suit your needs here. The “Estimate” columns are optional, you can hide or delete those columns if you’re just starting out. I prefer to have my categories across the top with dates going down, but arrange it however makes sense to you.

Imagine the difference it will make in your business knowing how much cash you have today and how much you will have 6 months from now.

Develop your cash flow template today to discover how big a difference this simple tool will make in managing your business.

Strategic Partnerships

Sometimes, building your brand means pairing up.

When you’re in the business of doing a specific thing very well, partnering with symbiotic talent can result in a win-win situation.

Right now, a toy maker is in search of such an alliance with a seller who knows how to make money on handmade toys.

TOYMAKER ISO RETAIL SELLER

This toymaker is an elderly gentleman and a generational craftsman who makes all his toys out of reclaimed wood. One of the most captivating aspects of his builds is that all the moving parts work.

Wheels roll, levers lift, and doors open.

His toys aren’t static showpieces; they are meant to be played with.

A century ago, such toys might have been common. Today, they are a dying breed because no one makes them anymore.

Well, almost no one.

THE OFFER

This craftsman can make the toys—including custom designs—and sell them to you at fixed, small-town prices. You can then mark them up as the market allows and sell them customers he can’t reach, due to age and other restrictions.

“What do the toys look like?” you ask.

Let’s take a look.

This is what you see when you walk into his remote shop.

Elderly craftsman standing in shop with hundreds of wooden toys he's made

You’ll notice that he has plenty to sell, but this is a good time to point out that he has enough inventory in storage to fill this shop 3X over.

Also, to get a sense of scale, take a moment to note of the semi trucks off to the right in the picture. Sizes of toys vary, but I would estimate that most of them average between 4″ to 7″ tall.

Keeping that in mind, here’s a closer look at a few of his designs.

Wooden toy: construction digger

His selection of construction toys are fun because, as mentioned before, everything that you want to play with does what it’s supposed to do. Levers lift, diggers dig, and wheels roll.

Toy wooden crane

Take this dump truck, for example:

Or this carriage that sits on elastics that make the coach sway as it moves.

Image of wooden, unfinished carriage
Note: This one is closer to 10″ tall.

And if you’re wondering if the carriage door opens…

same wooden carriage with door open.

… yes, it does. All you need is a size-appropriate horse and you are on your way!

He’s got planes.

Image of 3 different types of wood model planes (with propellers)

He’s got trains.

Image of wooden toy train on shelf

He’s got automobiles

Assortment of various painted, wooden vehicles
Assortment of unfinished Model-T cars on top shelf with smaller, painted semis on shelf below
Early 1900's car on display on shelf with painted cement mixer trucks.

He’s even got aircraft carriers.

4 jets and 1 helicopter on a carrier.

But my favorite might be his semi trucks.

Yes, he will make specific models as custom designs.

No joke, if I owned a semi company that gave out honors for drivers that hit benchmarks of excellence, I would buy him out, varnish them up, and put custom metallic placards on them.

Talk about an award everyone would actually want to get that might get passed down to future generations. It would be a killer way to build your brand.

Reminder: All wheels roll.

There’s more I could show, but you get the idea: There’s a toymaker who lives 90 minutes from anywhere who reclaims wood and fashions it into old-school toys you really don’t find very often anymore.

On top of that, if you have a design you want, he’ll make it for you. Like this toy rifle a customer wanted:

Complete with crosshairs in the site:

He’s a man with skills looking for a partner who can take him to market.

Are you that partner? If so, contact me.

Are you not his partner, but know someone who might be? If so, share this post.

A few answers to FAQs:

SELLING POINTS

All toys:

  • are handmade
  • use reclaimed wood
  • 100% Made in the USA
  • have moving/functioning parts
  • are easily marked up from wholesale prices

CHALLENGES

  • Partner lives in a remote location
  • Partner has no internet communication
  • You will likely want to handpick inventory if you are a stickler when it comes to variations in quality

Want to know more and find out if there is a profitable work relationship in your future?

Follow and DM me (Sheralyn) on Instagram or Twitter, and let’s get a conversation started.