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Quick thread on cash flow management
AKA
How you can grow a business to 20k/month and still have trouble paying your rent
THREAD
AKA
How you can grow a business to 20k/month and still have trouble paying your rent
THREAD
Last month, I was in this situation:
-400% Revenue growth in the last 3 months
-Amazing profits on the P&L
-Less than $1,000 cash in the company bank account
-Had to send in a Q4 purchase order within the week
And I didn't have any cash ready for the purchase order.
-400% Revenue growth in the last 3 months
-Amazing profits on the P&L
-Less than $1,000 cash in the company bank account
-Had to send in a Q4 purchase order within the week
And I didn't have any cash ready for the purchase order.
The problem was inventory.
Because of the rapid growth, every bit of cash I had went towards bigger and bigger inventory purchases
And, when the time came for the Q4 order, I didn't have enough.
What were my options?
Because of the rapid growth, every bit of cash I had went towards bigger and bigger inventory purchases
And, when the time came for the Q4 order, I didn't have enough.
What were my options?
I could have:
- Taken out a short-term loan (high APR)
- Negotiated payment terms with my supplier (P.O. size
wasn't quite large enough for leverage yet)
- Or planned ahead of time (and limited growth to preserve cash)
None are great
- Taken out a short-term loan (high APR)
- Negotiated payment terms with my supplier (P.O. size
wasn't quite large enough for leverage yet)
- Or planned ahead of time (and limited growth to preserve cash)
None are great
In the moment, I ended up maxing out the company credit card.
Then using 80% of my emergency fund and personal savings to fund the rest
And it worked.
Today, the business has a much better cash position and is ready to dominate Q4.
Then using 80% of my emergency fund and personal savings to fund the rest
And it worked.
Today, the business has a much better cash position and is ready to dominate Q4.
At the time though...
It was an incredible wakeup call to the reality of an inventory-based business.
And while you hear terms like "cash crunch" and "cash is king",
It's hard to understand until you're staring at large paper profits but don't have any cash in the bank
It was an incredible wakeup call to the reality of an inventory-based business.
And while you hear terms like "cash crunch" and "cash is king",
It's hard to understand until you're staring at large paper profits but don't have any cash in the bank
As I move forward, I'm keeping 3 things in mind:
1.During rapid growth, don't expect to take a profit
2.Find a way to shorten your cash conversion cycle ( @jayvasdigital had a great thread on this)
3.Always monitor your cash position + plan ahead for big expenses
1.During rapid growth, don't expect to take a profit
2.Find a way to shorten your cash conversion cycle ( @jayvasdigital had a great thread on this)
3.Always monitor your cash position + plan ahead for big expenses
Hope this helps somebody else.
This has been my first experience dealing with inventory and I'm just learning as I go.
This has been my first experience dealing with inventory and I'm just learning as I go.
