How to Grow

Fast (without
Going Bankrupt)
Part 2 – Staying Afloat (& Keeping More Cash)

©2007, T3 Capital Pty Ltd, All rights reserved

T3 = CAPITAL SOLUTIONS
 Topics for Today
1. Quick Recap of Last Session

2. Cash Forecasting

3. Should I Sell on Credit?

4. How to Get Paid Faster

5. The Payoff of Managing Your Debtors

6. How to Reduce Stock

7. The Payoff of Managing Your Stock

8. How to Use Your Creditors

9. The Payoff of Managing Your Creditors

10. The Total Payoff

11. Recap

12. How T3 Can Help

 Recap of Last Session
„ Case Study – labour hire company liquidation
– Industry

– Business Strategy

– Business Model

– Cost Structure
 Cash Forecasting

„ How often?

„ How far out?

 Cash Forecasting
„ Cash Receipts
– Sales collected

– GST refunds

– Borrowings (bank or you)

– Equity injections

– Government grants

– Customer deposits

– Sale of Assets
 Cash Forecasting
„ Cash Payments – Frequent

– Rent & utilities

– Staff & contractors & PAYE tax

– Stock

– IT costs

– Loan & lease payments

– Marketing & advertising

– Office supplies
 Cash Forecasting
„ Cash Payments – Less Regular

– GST collected

– Income taxes

– Superannuation

– Fixed assets purchases (machines, furniture, etc.)

– Dividends

– Professional services (lawyers, accountants, consultants, etc.

– Insurance (e.g. workers comp, PI, public liability, business

interruption, etc.)
 Should I Sell on Credit?
„ Case Study – extended credit terms (hand out)

„ Industry standard terms?

„ Can my credit terms help me be different?

„ Evaluating credit risk

– Your credit policy – set some rules!

– Check some trade references

– Start with a small order

– Credit rating agency (D&B, Veda Advantage)

 How Can I Get Paid Faster?
„ Credit policy & credit checks

„ Credit terms clear to customer

„ Accurate invoices

„ Follow up early

„ Log your follow up

„ Send statements

„ Take deposits

„ Offer discounts for early payment

„ Use debtor finance

 It Pays to Manage Your Debtors
„ KPI = Days Sales Outstanding
„ Example

„ Annual Sales $10,591,000

„ Divided by 365 = $29,016 of sales per day

„ Debtors of $2,225,600 divided by $29,016

„ = 76.7 days sales outstanding (DSO)

„ Invoice Terms were 30 days!!
 It Pays to Manage Your Debtors
„ Impact of improving DSO
„ Company had cash = $1,079,000 @ 76.7 DSO

„ If DSO cut to 60 days, cash up by $489,000 to over $1.5m

„ If DSO were 30 days (per terms), cash up by $1.4m to more

than $2.4m

„ $489k @ 5% interest for 12 months = $25k

„ It pays to manage your debtors!

The Payoff of Managing Debtors

$2,000
$1,593

$1,500
$1,079

$1,000

$500

$0
Before After

Cash in Thousands
 Can I Reduce My Stock?
„ Analysis first
– What sells fast?

– What sells slowly?

– How long is the lead time?

– Do I lose sales if I am out of stock?

„ Can you shorten lead times?

„ Reduce slow moving lines?

 It Pays to Manage Your Stock
„ KPI = Days Stock on Hand
„ Example

„ Annual Cost of Sales (CoS) $6,884,400

„ Divided by 365 = $18,861 of CoS per day

„ Stock of $1,131,700 divided by $18,861

„ = 60 days stock on hand

 It Pays to Manage Your Stock
„ Impact of Reducing Days Stock on Hand to 50 days
„ Company had cash = $1,079,000 @ 60 stock days on hand

„ If cut stock to 50 days on hand, cash up by $190,000 to

$1,269,000

„ $190k @ 5% interest for 12 months = $10k

„ It pays to manage your stock!

The Payoff

$1,350
$1,279
$1,250

$1,150 $1,079
$1,050
Cash
$950

$850

$750
Cash Cash After
Before
 How Can I Use My Creditors?
„ Take discounts or pay as late as possible?

„ Could any suppliers be stretched a bit further?

„ Example of paying fast & taking discounts

 It Pays to Manage Your Creditors
„ KPI = Days Creditors Outstanding
„ Example

„ Annual Cost of Sales (CoS) $6,884,400

„ Divided by 365 = $18,861 of CoS per day

„ Creditors of $1,131,700 divided by $18,861

„ = 60 days creditors’ outstanding

 It Pays to Manage Your Creditors
„ Benefit of Stretching Creditors to 65 days
„ Company had cash = $1,079,000 @ 60 stock days creditors
outstanding

„ If stretched to 65 days, cash up by $95,000 to $1,174,000

„ $95k @ 5% interest for 12 months = $5k

„ It pays to manage your creditors!

 The Payoff of Managing
Creditors

$1,200 $1,179
$1,150
$1,079
$1,100
$1,050
$1,000
$950 Cash
$900
$850
$800
$750
Before After
 Total Benefit = $814,000
„ Benefit of Reducing DSO to 60 days = $514,000
„ If DSO cut from 76.7 to 60 days, cash up by $489,000

„ $489,000 @ 5% interest for 12 months = $25,000

„ Benefit of Reducing Days Stock on Hand to 50 days = $200,000

„ If cut from 60 to 50 days, cash up by $190,000

„ $190,000 @ 5% interest for 12 months = $10,000

„ Benefit of Stretching Creditors to 65 days = $100,000

„ If stretched from 60 to 65 days, cash up by $95,000

„ $95,000 @ 5% interest for 12 months = $5,000

Total Benefit = $814,000
Cash in Thousands
$2,000
$1,893

$1,500
$1,079

$1,000

$500

$0
Cash Cash After
Before
 Recap
„ To make improvements (and avoid trouble):

– Forecast & measure

– Set & manage your credit policy

– Write a script & follow up your past due debtors

– Review & reduce your stock (and office supplies) where possible

– Review & stretch your creditors where possible

 Let T3 Help You
„ Grow your cash flow & profit

„ Increase the value of your business

„ Get new customers & increase sales

„ Sell your business if you want to cash out (we are business brokers)

„ Find a business for you to buy

„ Arrange growth capital if you want to expand (we are business finance
brokers)

„ Tom Richardson is available as a consultant, mentor/coach, business

& finance broker, company director, keynote speaker and workshop
facilitator

„ Contact T3 Capital today: advice@t3capital.com.au or 0412 257 274