🥗 Cash Flow Cleverness

AuthorAuthor

Ron Shah & Ash Melwani
March 17, 2024

Hey there,

Welcome back for another bite to chew on.

Happy St. Patrick’s Day for those who celebrate! 🍀

This time we're diving into a topic that might just be your lucky secret to scaling your business.

The Cash Conversion Cycle (CCC)

It's all about making your money work smarter, not harder.

Think of CCC as the rhythm of your business's heartbeat - it's all about the timing between spending cash and getting that cash back in your pocket. 

Getting this cycle to spin faster can be like adding turbo boost to your growth engine.

Our Cash Flow Makeover

Let's be real.

Adjusting payment terms and using credit wisely has completely changed things for us. 

Extending deadlines and smart credit use have helped us keep more cash on hand. 

And more cash on hand means more room to grow and innovate.

Why It Matters

Efficient cash management is the difference between just getting by and really thriving. 

Our experience shows that a well-managed CCC lets us chase after growth opportunities without sweating about cash flow 24/7.

Unlocking the CCC Magic

So, how can you make the CCC work for you?

 Here's the breakdown:

  • Rewards vs. Growth: It's tempting to chase after cash-backs and rewards, but there's a bigger prize. 

Using tools to extend payment terms for big spends like ads and inventory gives your business breathing room to grow.

  • Cash-Back Math: Imagine spending $1 million a month. 

Opting for extended payment terms on $700K of that can make a massive difference. 

Cash-back cards might give you up to $28K back, but stretching your payments out with tools like Plastiq can give your growth plans a real boost.

Don’t just take it from us.

The Harvard Business Review found that startups that improve their CCC by just 10 days can increase their cash flow by up to 20%.

Strategies to Supercharge Your Cash Flow

Feeling the cash flow crunch?

Here's what you can do:

Leverage Financial Tools

Services like Plastiq let you pay for big expenses with credit cards, even if suppliers usually don't take them. 

For example, net 60 day terms with your supplier (who requires ACH payment)

THEN financing the invoice to get another net 60 days.

That’s why Plastiq is so clutch for us.

It allows us to use credit in that situation.

Hello, up to 120 days of payment deferral!

Smart Supplier Negotiation

Negotiating isn't just about getting the best price. 

It's also about getting payment terms that work for you. 

Early payment discounts to your top vendors can improve your CCC and save you cash - especially if you're using a service like Plastiq to manage those payments without emptying your bank account too soon.

Financial Flexibility is Key

Moving away from chasing short-term rewards to choosing financial services that offer extended payment terms can help scale up fast.

Walk the Walk

It’s one thing to preach on how to do things.

Here are two examples on how we use this to our advantage at Obvi:

Marketing

Right now, we’re using Plastiq for mainly marketing expenses.

For Facebook and Google, we have net 30 terms, but they require ACH payment.

So, we use Plastiq to get an extra 60 days on those expenses

This equals an extra 90 days to generate revenue before those Facebook and Google bills come due.

Inventory

The second way we use this cash flow concept to our advantage is inventory.

Between the manufacturers we use, we have anywhere between pay-to-ship and net 60 terms.

So, we use Plastiq here again to get us an extra 60 days, giving us almost net 120 on some inventory orders.

Say you want to take this a step further to be super tight with cash outflows.

You can also start financing some of your operating expenses through Plastiq.

Typical invoices that you might pay through the bank/cash during a normal AP run, you can start financing through tools likes American Express or CaptialOne to get the best of cashback + payment extension.

The creativity on how you want to extend payment terms can be up to you.

It all depends on what would give your business an advantage having more cash on hand.

Real Life Example

Let us show you the back-of-the-napkin math we did to mitigate and justify Plastiq’s 2.9% fee for Obvi. 

Check it out below. 

If someone came to you offering to extend a $15k bill for 30 days for only 45 bucks, you’d jump at the offer just like we did. 

The Plastiq fee is a business expense and, therefore, tax deductible. 

(This is not investment or tax advice and your own card rewards and investment and tax rate may vary)

Other benefits of using Plastiq include being able to participate in vendors’ early pay discount offers. 

We have a shipping supplier that shaves off 2% from the total invoice amount when they get paid a month early. 

By submitting on Plastiq, the supplier received a wire early, but we didn’t see those funds leave our bank account early. 

Instead, it showed up on our credit card statement. 

In this case, we actually came out NET POSITIVE, even before factoring in tax savings and investment earnings! 

At the end of the day, why was floating out $20k and $15k payments on Plastiq important to us? 

It gave us an extra 30 days with more cash on the balance sheet to:

  • Build a new product

  • Hire an extra contractor

  • Purchase more inventory (which led to more sales + profits!)

  • Participate in paying our vendors early for 2-5% invoice discounts

  • Buy in bulk at a good price and not just when we had the available cash 

  • Gain a competitive edge in inventory bids

  • No longer worry about our own vendors paying us on time

  • Invest in our business’ high yield accounts

All while maintaining the terms lengths and payment delivery methods we already had with our vendors. 

We know your business can be just as fortunate (and lucky!) as ours has been. 

Being smart with your money and maximizing card use is key. 

We’re a proud partner of Plastiq. 

The Latest Soundbite

Coming from exploring how to make your business's money work smarter, don't miss our latest podcast episode.

We're joined by THE Alex Lieberman, co-founder of Morning Brew.

He shares his entrepreneurial journey from a dorm room project to a $75 million success story.

If you haven’t already, STOP what you’re doing and go watch!

Hungry for More?

Shoptalk is underway!

If you found us on the floor today, we’re so thankful you took time out of your day to speak with us.

We can’t wait for what the rest of the week has in store!

Come celebrate with us at our Unofficial Shoptalk Founders Dinner - Tuesday at 5:30pm PST at Fontainbleau

Vegas can’t be all work right?

It's All About Perspective

Considering shaking up your cash conversion cycle? 

Think of it as upgrading from a rowboat to a speedboat. Here's how to get started:

  • Take a good look at your current CCC

  • Spot opportunities to make things move faster

  • Tap into the right tools and strategies to make it happen

  • Identify large costs that you could be pushing off

Remember, managing your finances smartly isn't just about keeping your business alive; 

It's about setting it up for explosive growth.

Got questions or want to geek out over financial strategies? 

We're all ears! Hit us up:

And hey, if CCC tweaks have you curious, 

Plastiq's team is ready to dive deep into how their service can fit into your strategy.

Here's to making smarter moves with your money and fueling that growth journey. 

Onwards and upwards!

All the best,

Ron & Ash