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Case Study 9 - Cash Flow Management

Company Profile

A distributor of home products with multiple locations and sales of $15M. Customers were both retail and wholesale.

Problem

The Company had been profitable in the prior year, but borrowed money to support growth of the business. The owner could not understand why the business could not generate internal cash to support the growth. There was no cash forecasting or planning. Inventory buying was not in sync with the sales cycle.

Action

Our analysis of company information disclosed that one-third of the inventory was one year old.

We analyzed cash receipts from the three different sources and determined that there was a correlation with the sales cycle. Once we knew that information we moved on to planning disbursements on a weekly basis with a rolling six week projection.

We convinced management to sell off the old inventory at cost and developed a plan to insure that customers would not expect future business to be discounted as well.

We benchmarked operational costs by location, determined the optimal staffing levels and established rules and procedures on discounting.

 

Results

Cash forecasting enabled them to be more proactive with their suppliers and helped to educate the suppliers on payment expectations. This took the stress out of cash availability.

The cash from the liquidated inventory was reinvested in the top 20 SKU's. We also implemented an open to buy system so that inventory buying was aligned with the sales cycle. Availability of top SKU's increased sales by 15%.

Overall the company had a record year for profitability and cash flow was used to reduce bank borrowing by 30%.

 

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