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Cash Supply
One challenge faced by all but a few organizations is Cash Supply. Cash is analogous to oxygen for an organization–when it is plentiful, it’s easy to breathe and move about freely (explore new opportunities). When it’s in short supply, both basic movement (standard operations) and new movement (growth) are hard, if not prohibited.
One way to face the challenge of Cash Supply is to examine and improve the Cash Conversion Cycle (CCC). The CCC measures how long it takes from the time you spend a dollar (on sales, marketing, proposals, rent, inventory, wages, etc.) to when you get that dollar back.
In the early days of Dell, their CCC was running 63 days and caused them to almost run out of cash. By focusing on decreasing the cycle, Dell got it down to minus 35 days. This, in effect, meant the faster they grew, the more cash they generated–an enviable position for any business.
We believe all growth firms can significantly improve their CCC like Dell or at least lower it to the point where they give themselves sufficient internal cash to fuel growth. Like most things, improving the CCC does not happen by accident or without hard work.
At a minimum, we suggest company leaders read Neil Churchill’s famous Harvard Business Review article entitled “How Fast Can Your Company Afford to Grow” which provides the formulas for calculating your Cash Conversion Cycle.
Give us a call if you would like to discuss further exploring your cash conversion cycle… Mention this post to receive a free review of your Cash Conversion Cycle (certain restrictions apply).