A Visa card with chip technology for easier transaction processing.Fred Lum/The Globe and Mail
One of the best parts of writing a column and books is hearing from you, the reader. I'd like to turn the column over to your questions this week. Please use the comment field below to ask about building a company you could sell or to provide a comment you'd like me to address.
Q: "You talk about charging up front as a key part of creating a valuable and sellable business. I sell to retailers, and charging up front would be a non-starter. My customers are insistent on 30-day terms at a minimum. What would you advise?"
A: Creating a positive cash-flow cycle is an important part of growing a valuable business because (a) it gives you the working capital to grow without having to dilute yourself with outside investors and (b) it bumps up the multiple you'll get for your company because the acquirer will have to invest less cash to run your business. It's also a lot more fun to run a business that has money in the bank.
There are many ways to create a positive cash-flow cycle. Here are some thought starters:
Could you pay more slowly than you get paid? You get paid in 30 days, but could you get 60- or 90-day terms from your vendors? Even though you would not be getting paid up front, you would still have a positive cash-flow cycle.
Could you create a division of your company that sells directly to consumers without alienating your retail channel? Even if it were just 10 per cent of your revenue, every dollar you get directly from a consumer (assuming you swipe a credit card when you process the order) will serve to increase your cash flow.
I like the business model used by the wine clubs - members pay an annual membership fee up front and then the club ships them a bottle of wine every other month. The club has its members' money to work with all year. Could you create a wine club model in your business?
Could you start buying your labour on demand instead of having full-time employees? Toms Shoes - a $10-million fashion business - sells to big-name retailers such as Nordstrom but it does not actually hire the labour to make the shoes until a customer has placed an order. Then it hires workers to fulfill only the orders it has in hand.
What ideas do you have for creating a positive cash-flow cycle when selling to retailers?
Special to the Globe and Mail
John Warrillow is the author of Built To Sell: Turn Your Business Into One You Can Sell . Throughout his career as an entrepreneur, Mr. Warrillow has started and exited four companies. Most recently he transformed Warrillow & Co. from a boutique consultancy into a recurring revenue model subscription business, which he sold to The Corporate Executive Board in 2008. He is the author of Drilling for Gold and in 2008 was recognized by BtoB Magazine's "Who's Who" list as one of America's most influential business-to-business marketers.