THE CASE FOR CASH FLOW – How to break dependency on cash and banking and need less of it for budgets.
We all know that cash flow is crucial for the day to day operation and sustainability of any business. Your business may be profitable operationally and have solid medium to long term viability, but if you are spending faster than you collect revenue, you will run into trouble quickly. That’s a no-brainer. In a recession, cash flow can be the last flag to fall after other primary elements such as declining sales volume, average margin, restricted credit facilities, bad debt etc have slowly turned the screw and a business runs out of wiggle room to survive until an unknowable future upturn.
However, an upturn in an economy can lead to serious cash flow issues and can take a stable business by surprise, particularly when a business either simply receives considerably more orders suddenly or pro-actively attempts to expand or take advantage of increased demand, albeit in the face of increased competition. In a Business to Business (B2B) scenario, credit control can quickly lag behind increased sales, particularly to new customers. The actual negative effect and speed of impact of this will depend on the cost of sales. Unlike a downturn scenario, where the prospect of “not getting paid at all” is forefront in consciousness and every cent banked matters, in an upturn, it fades in priority – partly because of the psychologically positive comfort blanket of increased turnover and partly because of a lack of credit control staff to chase down payments. Orders must still be fulfilled on time – often to customers who are ( unknowingly ) slow to pay – necessitating increased fixed and variable costs with wages, stock, transport, sub contracted services, maintenance, after sales services etc driving up and speeding up cash outlay way ahead of incoming revenue.
In a retail, Business to Consumer ( B2C ) scenario, the issue of getting paid is much less of an issue as sales revenue will most often be instantaneous and come in well ahead of outgoing stock or subbed out services costs. The big challenge for most retailers, however is the necessity to advertise, market and promote their business to take advantage of an upturn and keep ahead of the competition and to find a way to finance an ongoing marketing initiative. For smaller retailers this means competing with the bigger household names with bigger advertising budgets, bigger stock buying power and cost economies of scale along with smaller but growing operators returning to the market to fill the new demand gap that you are also trying to exploit. When the honeymoon period ( The timeframe when an economy starts to lift, consumer spending increases but few new competitors have yet entered the space so all existing operators enjoy a temporary sales boost ) is over, the challenge of getting a fair or better slice of the bigger pie market is looming and must be addressed. You need to get your name, your brand, your special offers out there NOW. To cut through the marketing lingo, you need your business and everything good and inviting about it to become famous fast. See – How to advertise, market and promote your business without the cash budget” here
Whatever budgets you need to cut or create, relying on cash reserves, cash coming in or limited credit facilities to expand and manage expansion is simply not going to cut it.
You need to think outside the box, look at your business and start thinking “What have I got instead of what am I short of?”
What you are short of ( like most businesses ) is ready cash.
What you have got is:
A) 1) Your product, and in most cases a reliable supply of it – maybe too much stock, simply sitting there, waiting to be sold, depreciating, earning nothing – a non performer.
or:11) Your services, in most cases, spare capacity – your ability to supply much more than you currently are without effecting fixed costs – again a clear non performing and time sensitive asset. ( you cannot sell yesterdays radio advertising space, spare courier capacity or print capacity today. It’s gone. It’s something which had full value yesterday and you could have sold it but today it is worthless because you did not.)
B) Your ability to supply your product or service in the future.
C) Your gross profit margin ( ie; the marginal difference between the sales price and the cost to you to supply your product or service )
With Contra, these are the hidden assets in your business and this potentially changes everything.
With Contra, your stock or spare capacity immediately becomes a flexible complimentary currency which you can use to finance a wide range of purchases by simply making your stock or services available now or in the future and buy what you need now using Contra euro’s instead of cash euro’s. You can choose to sell now and use the Contra Euro revenue as alternative budgets or simply use your ability to supply in the future as collateral for an interest free credit facility now- buy now – pay later – with your product or service, keep your cash.
By opening a Contra Account for your business, you are immediately reducing your dependency on cash and your bank by converting your product or service into a flexible, usable currency. you are also reducing your costs on all purchases using your margin and you are accessing a whole new market – customers who have never purchased from you before.
For more on general benefits, Click here
Open a Contra Account now here