Case Study: Better Cash Flow, Better Profits

The old saying goes, ‘cash is king’ and it is certainly the lifeblood of so many companies, no matter the size.

It secures inventory, pays staff and is directly linked to profits. If it’s so important, how well do you understand it? Do you have good visibility over the cash flow through your business?

One of our clients had a profitable business but felt their growth had stagnated. Their cash balance was consistently low, but they could not work out why.

To better understand the current situation, we needed to take a step back. By looking at historical records over the last few years, we were able to get a better understanding of exactly how the business was performing financially.

Through a system of regular monthly meetings and ongoing support, we were able to review their internal processes and assess how they best serve their customer’s needs. With a solid outline of their recent track record, we could then dig deeper into the numbers to establish clear cash flow patterns.

With these established patterns identified, our team was able to get a better handle on where adjustments could be made to better complement the natural ebb and flow of cash through the organisation. We created a detailed cost analysis of the business and calculated an optimised hourly charge out rate which needed to be sustained in order for the business to maximise their profits.

The analysis didn’t stop there as we also looked into their inventory levels. Our experts devised and implemented systems with regards to holding stock and minimum purchase quantities for clients, to ensure maximum financial stability and optimised cash flow

The results were a revelation. Having better visibility over cash flow, optimising inventory management and creating more accurate pricing, it set us up to really start to produce efficiencies across the business.

We used the insights to adjust the pricing even further, creating a data-driven set of Recommended Retail Price points (RRPs) for their product range to best maximise returns – and profits. With the adjustments to minimum order quantities, the client was able to reduce their inventory to optimal levels and convert their existing inventory value into cash.

With more cash flowing through the business, this has enabled them to re-invest back into their operations and acquire new machinery and equipment. By tripling their production capabilities through investment of approx. 1.5m of machinery purchases, the business turnover has now tripled, all while increasing their next profit percentage.

Inspired by the results our tweaks to their processes have produced for the cash flow in the business, with the resulting investment opportunities and jump in profits, we’re now looking at where else we can realise efficiencies, increase productivity and boost revenue.

We still meet monthly to set budgets and ensure the business stays on track. Our regular planning sessions have identified opportunities in overseas markets, so we’re digging into ongoing costs for new products to ensure their gross and net profit targets can be met.

Share this article