What is cash flow? Cash flow is the total amount of money being transferred into and out of a business. The higher your cash flow, the more liquidity you have. Having a great liquidity allows you to focus on reinvestment and gives your business a “take shot” mentality. We experiment with products that sell in volume, as we are able to easily get away from bad investments.
We make it known to anyone who asks how important cash flow is to our business. Our goal is to expand our sales and, in turn, expand our profits through volume. We believe this philosophy works on many levels. Here are some of the reasons we have geared our business to be incredibly cash flow oriented.
1) We are able to take more chances. This allows us to constantly invest in products, and allows us to simply keep the cream of the crop or the profit-producing products. Products that don’t work out are not restocked. The rate of sales makes the impact minimal for products that don’t work out. It really is like ripping off a band-aid.
2) We aren’t forced to be reactive. We have a constant gauge of how our products sell. We don’t hope to sell certain products, we expect them to sell and are able to allocate our funds accordingly. If you are buying products that don’t promote fast return and increase your cash flow you will often find yourselves marred in products that are simply a crapshoot. You become cash-out dependent on your sourcing.
3) Fast-selling, higher velocity products are more consistent. This DOES NOT mean you will never lose money on them. However, the money lost is generally minimal and you can reinvest and recover quickly. Products with less demand will become more volatile. For example, if you have a product that has 10 sales per month, and 20 sellers. That means that 20 sellers are doing their best to be one of the small numbers of sales. This generally will start more “race to the bottom” situations, and usually leads to less consistency. That means big margins may not remain big over time.
4) Products naturally create margin for themselves. With higher velocity products, you generally have to purchase more, which in turn leads to larger discount structures with your suppliers. Then you are processing larger batches of product, which drives your cost per unit processing time down significantly. These products have a much lower carrying cost in general.
We have focused our entire business on this model. When we purchase products, we expect they will sell quickly and recoup our investment. Sometimes investments fail, and you miss, but utilizing this strategy will allow you to recover quickly. The main goal is to simply find as MANY targets as possible and take chances accordingly.
Cash flow is a huge part of any business. Focusing your cash flow on tighter investments, or timed investments, will inherently improve the health of your business. Not to mention, it will inherently create more opportunities for you over time, which allows your entrepreneurial spirit to take over and you to find new creative ways and strategies to employ to make money.
How important is cash flow in your business? What can you do to increase your cash flow? Write me back and let me know what you think!