Learning to manage Cash like Costco
Cash is king. That is the old saying in investment circles. Not profitability, not return on investment, not any other operational metrics. Cash in some sense is the real thing and everything else is accounting.
Whether you are a startup or a not for profit, managing cash is key to your organisation. The benefits include a decrease in mental stress, paying payroll on time or adapting to market challenges. Bill Gates was so conservative in managing Microsoft that he always ensured he a years worth of cash to pay his staff in advance. That’s billions of dollars.
Verne Harnish provides some good ideas in this Fortune article.
Every business can learn an important lesson from Costco. The fast-growing warehouse retailer did $103 billion in sales in the fiscal year ending in September, with pre-tax earnings of $3 billion. Membership fees brought in $2.3 billion — equal to about 75% of its profit.
1. Shorten the sales cycle. It can cost you a lot of money to go after customers. Most companies don’t think about the fact that the faster you can land a sale, the quicker you can get a return on that investment (and the more likely you are to block competitors from getting there first). Get off email and pick up the phone or meet your customer face to face. Spending 20 minutes this way will bring you closer to a sale more quickly than going back and forth by email for three days.
2. Eliminate errors.
Many entrepreneurial companies get sloppy about sending out invoices. They’re so busy making and selling things that their paperwork starts to slip. Even something as simple as using the wrong format for an invoice can delay your payment for weeks or months at a big company.
3. Rethink your business model. There may be ways you are doing business that are slowing the cash conversion cycle. For instance, many companies send out invoices every 30 days. Speeding that up to every 15 days will get cash into your company more quickly.