The Inventory Lever to Increase Cash Flow in Your Small Business | Core Group US
The Inventory Lever to Increase Cash Flow in Your Small Business
As we discussed in our previous...
If you’re like me, you’ve heard the phrase a thousand times, this isn’t a sprint, it’s a marathon. I didn’t really understand the depth of that phrase until I ran a marathon. For most of us who haven’t ever run a marathon, we interpret the phrase as something like, don’t go too fast, this is going to take a while. Or we think, we’re not going to achieve this overnight. While both of these things are true, they are only partial truths.
Running: I look at my Forerunner 945 for multiple data points at least once a minute. Over the course of running for 6 hours, I have to analyze and manage my body to make sure I don’t burn out while keeping on pace to finish on time. I detail the science behind at the end of the article if you’re
Business Application: Hopefully I don’t have to sell you on the need for data in your business. But are you regularly (weekly/daily) measuring the right items to predict success? It’s not having cash in the bank or profit, those are the results of a successful business. Metrics you track should show that you’re doing the correct things to achieve your goals.
Running: I literally started with the Couch to 5k several years and progressed from there. Although I have run a 5k without any plan or training, very few people can run much further without some type of plan. You’re going to fail, and probably hurt yourself if you run a marathon without training.
Business Application: The vast majority of small business owners never think strategically. They react to the situation and do tactical things. If you want long-term success, implementing a strategy is not an option. You must plan and execute to achieve your business goals.
Incremental Changes Over Time
Running: I know that I need to average 3 minutes 26 seconds every quarter-mile to finish in under 6
hours. Drop down to 3:30 and I miss the mark by 7 minutes. That would suck, to be so close and miss my goal. Small, incremental changes made continuously add up to long-term success.
Business Application: Imagine increasing your gross margin by ¼ %. What would that look like for your business? Probably not real exciting, but what if you did that every year? Over time, that would have a huge impact on your profitability and success. Many people get hung up on making huge changes. Don’t worry if you can only impact a little at a time.
Keep The Pace
Running: The above pace calculation is precise, but you have to throw in elevation change, fatigue, and wind. Keeping a steady pace is DIFFICULT. When you start the race, you want to go faster. If you do, you’re toast, you’ll run out of fuel and won’t make your goal. After 20 miles, into a headwind, it’s the exact opposite problem, you have to will yourself forward to keep the pace. Basically running a marathon is a combination of trying not to run too fast, and then trying like hell to keep going.
Business Application: Jim Collins retold the story (I’m sorry I can’t remember if it was Good To Great or Built to Last, both are must-reads) of the Arctic explorer that set out for the North Pole. Regardless of the environment or obstacles, his team kept a rigid pace. Some days that meant they stopped when they could have gone on. This is VERY hard to do and takes tremendous discipline. There is a reason for the pace. Marketing can’t get ahead of Production, and Production can’t get ahead of Finance. Everybody has to match the pace.
It’s Going to Suck
Running: It doesn’t matter how much you train, running 6 hours continuously sucks. Here’s the thing, you are capable of much more than your mind tells you. In the book The Rise of Superman, author Steve Kotler quotes a study that estimates normal people only exert 65% of their maximal effort, or the amount physically you can output. Trained athletes bump this percentage to 80. Why can’t we will ourselves higher? Our body is protecting itself. Go over that threshold and the risk of injury dramatically increases. My point is that your mind is lying to you, and in most cases, your body is too.
Business Application: Many times I’ve consulted business owners who say they can’t do this or that, but when pushed to back up the reason why they fail. Just as there are some physical limitations to what you can do, there are some economic limitations as well. That said, most of the reason people don’t reach their business goals is that they have already lost the battle in their minds. And here’s a dirty secret. Many people go into business for themselves to HIDE from being challenged.
They create their own little world where they can’t be challenged, and they sabotage their own success.
Running: Box breathing is an incredible technique to calm your body using your sympathetic and
parasympathetic nervous systems. Here is a great video explaining it. When I run distance, my
breathing rarely goes over 21 breathes per minute, compared to 17 per minute when I sleep. If you
don’t control your breathing, you can’t control anything else.
Business Application: Cash is often referred to as the fuel of a business. I prefer the analogy of oxygen. You will not survive very long without it. It is critical. Your body can go for a period of time without fuel. Think of it this way, how long can you hold your breath versus how long can you fast?
Cash is the same for a business. A business can’t hold its breath very long. As my colleague, Alan
Peterson says, Revenue is Vanity, Profit is Sanity, and Cash is King. Manage your cash, and you can
manage anything in your business. Ignore it, and you can’t control anything.
For those of you interested in the science behind this lesson, I present the facts. At 250 pounds, I’m not your typical endurance athlete. In fact, it would be a stretch to say I am an athlete at all. Being that large poses unique challenges for covering long distances. When you’re moving that much weight over 26.2 miles over the course of 6 hours, there are a lot of variables to consider. Any healthy individual can walk 26.2 miles, but do it in a prescribed time takes lots of training and lots of monitoring.
During a marathon, I will burn approximately 5000 calories. That’s roughly 1.5 pounds of fat, so if
success was a matter of my body having the fuel, it wouldn’t be a problem. I have way more than 1.5 pounds of fat on this body. The problem is that your body never burns 100% fat. Depending on the level of exertion, your body burns a mixture of glucose (carbohydrates) and fat. The more exertion (read faster) you go the lower percentage of fat, and more glucose, you use.
Your glucose stores ARE limited, unlike fat. So if you don’t run slowly you’ll run out of glucose and
experience the “bounce”. So how fast can you go? You’re limited to your glucose storage, which is
mostly determined by your muscle mass. You have a small amount in your blood and liver at any one time, but most of the fuel is in your muscle.
At 65% of your maximum VO2, you’re burning about 50/50 fat and glucose. How fast you go is a
function of your muscle mass (hard to change), your weight (you can lose excess fat), and your
maximum VO2. Then it’s simply an algebra problem.
For me, if I run at a rate of 13.5 minutes per mile (very slowly), I’m at roughly 70% of my VO2 max at 165 beats per minute. This translates to a 75/25 glucose/fat fuel burn ratio. I store 2,200 calories in glucose, and I need 75% of 5,000 or 3,750. Meaning I have to consume 1,500 of glucose DURING the race, which is the upper limit of what you can process over six hours.
There are other tactics such as “carb loading” which can increase the stored glucose and reduce the need for in-race fueling, but you see the limitation problem. At my weight, 6 hours is about as fast as I can run a marathon. It’s just science!
If you want to read more on the subject, this is the best article I found on the subject of marathon
fueling. Warning, it’s a research paper, so it’s technical.
As we discussed in our previous...
Cash flow for small business is the fuel that drives the engine. Strategy, execution, and the best...