how to grow without bankruptcy - 1107-pt2 - v4
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T3 = CAPITAL SOLUTIONS
How to Grow
Fast (withoutGoing Bankrupt)
Part 2 Staying Afloat (& Keeping More Cash)
2007, T3 Capital Pty Ltd, All rights reserved
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Topics for Today1. 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
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Recap of Last Session Case Study labour hire company liquidation
Industry
Business Strategy
Business Model
Cost Structure
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Cash Forecasting
How often?
How far out?
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Cash Forecasting Cash Receipts
Sales collected
GST refunds
Borrowings (bank or you)
Equity injections
Government grants
Customer deposits
Sale of Assets
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Cash Forecasting Cash Payments Frequent
Rent & utilities
Staff & contractors & PAYE tax
Stock
IT costs
Loan & lease payments
Marketing & advertising
Office supplies
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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.)
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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
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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!!
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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 morethan $2.4m
$489k @ 5% interest for 12 months = $25k
It pays to manage your debtors!
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The Payoff of Managing Debtors
$1,079
$1,593
$0
$500
$1,000
$1,500
$2,000
Before After
Cash in Thousands
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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
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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!
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The Payoff
$1,079
$1,279
$750
$850
$950
$1,050
$1,150
$1,250
$1,350
Cash
Before
Cash After
Cash
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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
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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
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It Pays to Manage Your Creditors Benefit of Stretching Creditors to 65 days
Company had cash = $1,079,000 @ 60 stock days creditorsoutstanding
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!
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The Payoff of Managing
Creditors
$1,079
$1,179
$750
$800
$850
$900
$950
$1,000
$1,050
$1,100
$1,150$1,200
Before After
Cash
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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
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Total Benefit = $814,000
$1,079
$1,893
$0
$500
$1,000
$1,500
$2,000
Cash
Before
Cash After
Cash in Thousands
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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
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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 financebrokers)
Tom Richardson is available as a consultant, mentor/coach, business& finance broker, company director, keynote speaker and workshopfacilitator
Contact T3 Capital today: advice@t3capital.com.au or 0412 257 274
mailto:advice@t3capital.com.aumailto:advice@t3capital.com.au
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