The Best Ways to Manage your Cash

Because I’m an entrepreneurial CFO, I have real life experience with managing cash flow in a business.  I owned a chain of retail ski stores in the late 1980’s.  Due to the seasonality of that type of business I’d forgive you for thinking that the cash flow would be terrible in the summer time, but the reality is I never used my line of credit.

There were two main reasons(outside of expense control and  cash conservation strategies)I managed to avoid resorting to that for all those years:

Number 1: Closing all of our store locations every off season.   Our specialties were equipment, clothing and accessories all made for skiing. That was our area of expertise, and what our customers trusted us with. If we were to keep all our locations open year round by also selling summer goods (like most of competitors at the time), not only would we have had slow inventory turns, but we also would have had carryover of unproductive non-ski inventories preventing us from investing in what we did best (aka what the consumer also knew we did best).  Invest only in inventory that is productive (with lower unplanned markdowns and higher inventory turns) for cash flow and profits.  Avoid tying cash up in any unproductive inventory, because in the end that will only give you cash flow problems, unplanned mark downs and lost profits.

Number 2: I made sure that I would have very little merchandise every December 31st by running my inventory down. I ensured that I could purchase close out merchandise in January, February and March, then pay for it in October, by working with my suppliers.  January, February and March are strong periods in the ski business (especially if it snows locally), and as a result of my first two endeavors, I was always able to take my sales from those strong months to finance the summer. The months of August and September are the real start of the winter buying season, and every year at that time I would have a grand opening (closing my stores every summer allowed me to have a grand opening every year) and a major tent sale. These events combined easily covered the October close out bills.

If you own a seasonal business or if your business happens to have periods of low sales activity, you need to identify your business cycle, and this is something a CFO can help you to do. The business cycle as I am defining it here being the time between you receiving the inventory or raw material and you getting paid for the final product. Receiving payment for the final product before paying for the inventory and/or expenses of production and/or the expenses of selling the inventory is the ultimate goal. You can create strategies and work with suppliers (also things a CFO can assist you in doing) in the way that most productively meets your needs if you understand your business cycle.

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