Unleashed Cash Flow Workshop: Experts Share Tips for Generating Cash Flow & Mitigating Risk

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Overstocking became a necessary evil for many companies as they struggled to meet customer demand throughout the recent onslaught of supply chain disruptions.

As a result, significant amounts of cash flow remain tied up in unmoving inventory.

Greg Roughan, Content Marketing Manager at Unleashed, sat down with three accounting and business advisory experts to discuss how businesses can manifest a successful return to normality and prevent cash flow freezes in a post-pandemic world.

Meet the experts

  • Zander De Klerk: Zander is a seasoned Chief Financial Officer, Tax Agent, and Accounting Advisor with over 16 years of experience in the field. In addition to his work in accounting, Zander is also an entrepreneur and investor; he cofounded and currently manages The XETA Group Australia and is the CFO of ECOHEADS.
  • Carl Ferner: Carl began his career in accounting in 2010 when he joined BDO as a Business Advisor and IT Consultant. His expertise has led him to become Partner at BDO, where he continues his focus on business advisory and IT Consulting.
  • Jason Daniels: Jason has a wealth of experience within the accounting field. His career began at PricewaterhouseCoopers in 1995 as an accountant. Since then, Jason has worked as a director across numerous organisations including Compass Accountants & Advisors, BDO Australia, Faktored, and most recently, businessDEPOT.

Cash flow 101: Back to basics

The COVID-19 pandemic and subsequent supply chain disruptions caused a great shift in the way product businesses now operate.

As our experts point out, this may have led to complacency. What helped them survive tumultuous times is now holding them back; our own findings recently revealed that businesses are carrying up to twice as much stock as they were in previous years.

Jason Daniels of businessDEPOT explains why this approach is no longer sustainable.

“Economic conditions have changed; discretionary spending has come out of the market … costs have gotten out of control.”

The solution, he says, is a simple one: Get back to doing things the way they were done pre-COVID.

And Zander De Klerk of XETA agrees; he says a return to the basics begins with basic knowledge.

“That little piece of paper that says ‘P&L’ – underneath it is the real world of customers, sales processes, debtors, analyses… Ultimately, it’s fundamentals. It’s getting the basics right.”

cash flow workshop quote from Zander de Klerk

Converting overstocked inventory into positive cash flow

While prevention may be preferable to cure, the reality is that many firms are still stuck with excess stock tying up their cash flow and costing them thousands in storage fees.

When it comes to shifting those overstocked items, discounting the purchase price can be tempting. But as our experts explain, the fastest way to increase liquidity isn’t always the most financially beneficial.

Jason says that profit margins and customer buying patterns often come as an afterthought.

“The problem with the discounting cycle is you start to train your customers to only buy when you’re in a cycle.”

A more sustainable approach, he adds, is to bundle unmoving stock with fresher product lines.

“Using old stock as a giveaway (rather than discounting it) works well if we bundle it with a new product that’s coming in. Bundling also provides a way of differentiating against a competitor’s product or pricing.”

At the highest level, Carl Ferner of BDO adds, getting rid of excess stock all comes down to sales tactics.

“Do you need to look at a different market, a different strategy? If you’re selling one at a time, do you need to [find] a bulk buyer? If you’re selling desk lamps to the public, can you find someone building a hotel that needs 500?”

Accidental discounting: The insidious profit killer

Carl offers a stark warning to product businesses: If you aren’t raising your prices in line with global economic conditions, you’re essentially discounting your entire catalogue without meaning to.

“We’ve had this decade of no disruption where low-interest rates weren’t moving, and inflation was low.”

“Now we’re in a high inflation environment. People are having to really check their costings. Without noticing it, they’ll just keep selling [products] at the same price but they’re not actually making as much money. They’re discounting by simply not putting the price up.”

Of course, any increase in prices is bound to concern a few customers. Some may even seek a new supplier.

To those concerned about losing clients by raising prices, Carl says that a product’s value impacts customer loyalty more than its cost:

“If your clients aren’t going to wear a small price increase, is your product really delivering them value?”

cash flow workshop quote from Carl Ferner

Know your customers by name, face, and margin

In many cases, cash flow is restricted by low- or non-profitable clients, clients that don’t pay on time, and products with narrow margins.

The 80-20 rule, also known as the Pareto principle, states that 80% of outcomes are derived from 20% of causes. In business, this has often meant that 80% of sales come from 20% of efforts made to sell. But as Zander says, the 80-20 rule applies to more than just sales.

“80% of our income was coming from 20% of our clients.”

Carl Ferner of BDOIS notes that this is why understanding customer profitability is so important.

“I tend to find the customers that aren’t profitable are also the ones that don’t pay on time, take up most of your sales time and complain the most.”

“We made a simple graph overlaying revenue-by-customer with margin-by-customer. You might have a high-revenue customer, but their margin is super slim. At the other end, you’ve got these customers you don’t sell much to, but you’re making great margin.”

The question then becomes: “How do we boost those high-margin customers to be at the high-revenue end?”

In Zander’s case, the solution was to create tiered pricing for less profitable clients.

By doing so, it forces less-desirable clients to either become profitable or find a new supplier. If they choose the latter, you still benefit from no longer wasting valuable time chasing their debt or handling their sales calls.

Jason adds that a professional approach to credit, and being firm with collecting debts, will naturally filter out troublesome or unworthwhile clients.

“[Many businesses] don’t have the basic terms of trade in place,” says Jason. “They’re not doing the debtor checks, they don’t have Romalpa clauses with their debtors…”

“Once you get a reputation in a particular industry that you’re very quick to [follow up on debts], you’ll get paid first. The squeaky wheel gets the grease.”

cash flow quote from Jason Daniels

Automated processes: Technology a key to unlocking essential cash flow

Trade terms and debt collection take us to one of the major factors affecting cash flow: Technology – or a lack thereof.

Businesses function through the instigation of many small processes or workflows, many of which can be optimised for efficiency by introducing new technologies or modernised systems.

Carl Ferner says that cash flow and technology are therefore intrinsically linked.

“There’s a whole lot of technology that can help [improve] those processes. [Take] a business that’s not billing until the end of the month: It might be they’re too busy shipping out products. A good system in place could automatically [send] that invoice right then and there.”

But automated invoices aren’t the only way to improve cash flow with technology.

For B2B businesses such as wholesalers and manufacturers, the experts agree that a B2B sales portal is great for reducing friction. Less friction means more sales. And ultimately, more cash flow.

“[Implementing a sales portal] will dramatically cut down the admin,” says Jason. “Customers want the self-service; they don’t want the grief of picking up the phone or sending an email.”

Carl agrees. He adds that a B2B sales portal is all about increasing the ease of doing business.

“Customers can just jump on a portal, see your pricing right there, see if they’ve got it in stock, and place the order. They’re coming into your system: orders are going to get out the door faster and you get paid faster. The velocity of the sale is just quicker.”

Forecasting essential to prevent another crisis

Getting rid of old stock is great. But how about preventing overstock in the first place?

According to Jason, understanding seasonality and demand play a huge role in setting accurate min/max and reorder levels.

“A lot of the ecommerce businesses we work with had a phenomenal November. It was a combination of Black Friday and Australia Post scaring everyone into getting their Christmas orders by November. But as a result, December was pretty slow, and January was abysmal.”

Forecasting is critical [for making] decisions in advance of the problem, rather than being caught with your pants down.”

Zander adds: “If you’re selling water bottles, chances are you’ll sell more of them in the summertime. Knowing what your [optimal] order quantities are will prevent overstocking in the first place.”

Storage and management costs rise as cash flow drops whenever a product is overstocked. Demand forecasting tools like Unleashed’s Advanced Inventory Manager are crucial for making the right purchasing decisions every time.

“We went through the entire client list of a big importer/exporter and looked at their sales and SKUs using Unleashed’s business intelligence reporting,” Zander explains.

“That data we’ve been able to derive from years and years of using Unleashed gives us the confidence to say, ‘This is what it should be. This is what it might be.’ These are the best advantages that you could get.”

In summary: Fundamentals, fundamentals, fundamentals

So, where does that leave us?

Right back where we started: Cash flow 101.

The key takeaway from this conversation is the utter importance of getting the basic stuff right from the start. Forget about the quick fixes and the nice-to-haves; focus on building solid processes and firm foundations.

“It doesn’t matter if your business is 20 years old,” Zander tells our audience. “Look at the fundamentals. Look at it fresh. Don’t just keep doing things the way you used to. It’s better to just rip off the Band-Aid and say, ‘If I was a buyer of my business looking at my inventory system and my sales, would I be happy with the way things were?’”

Good fundamentals begin with simplicity. When it comes to cash flow recovery, Jason says to focus on low-cost strategies that are simple to execute.

“Often it comes back to [building] strength around our brand. Work our mailing lists, our marketing database. Let’s not do a $20,000 video and photoshoot; let’s do something simple. Let’s get back to what our brand was pre-COVID.”

Carl rounds us off with a final piece of advice on how business owners can stay on top of cash flow:

“Good systems with good processes [that are] well-documented. Know what you’re doing.”

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Oliver Munro - Unleashed Software
Oliver Munro

Article by Oliver Munro in collaboration with our team of specialists. Oliver's background is in inventory management and content marketing. He's visited over 50 countries, lived aboard a circus ship, and once completed a Sudoku in under 3 minutes (allegedly).

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