Our Cash Position Unpredictable” (Lesson 5)
Most florists have two big days on which they can predictably make a lot of sales: Valentine’s Day and Mother’s Day. Otherwise, they’re usually waiting for someone to walk by their store.
Still, because they have to keep an entire inventory of flowers of different varieties, they end up wasting as much as 60% of their inventory because their sales are unpredictable outside of those two days.
But imagine if a florist had a recurring revenue stream. Let’s say this particular florist was creative and set up a membership program to deliver a bouquet of flowers monthly to paid subscribers.
Now this florist knows how much they will sell each month and can order the right amount of inventory. If they’ve got a certain number of monthly bouquets to deliver, they will just buy enough to make the bouquets because that’s where the recurring revenue is. Doing this, they’ve reduced the excess waste.
Beyond inefficiencies in process or creating excess waste, when sales are unpredictable you will always be worried about whether you’re going to be able to meet salary and payroll requirements. Meanwhile, your employees feel like they’re in a rut because they’re doing the same thing over and over again.
Make Your Cash Situation More Predictable
By not attuning to how sales affect your cash flow and figuring out ways to manipulate your cash flow, you’re only keeping yourself in an unpredictable position. What would it take to come up with ways to incentivize your customers to pay within a week?
Have you considered the timeframe in which you pay your suppliers? Your cash can be easily tied up in either end of the sales process, but are you strategizing around how to release that cash in a way that works for you? If you’re not managing or negotiating the timeframe in which your customers pay you in relation to the time you have to pay your suppliers, you’re most certainly pressurizing your cash flow windows.
Of course, that requires some thought, planning and strategy, which you’re likely not taking the time to do.
Perhaps you aren’t even aware that you should be considering a recurring revenue model. Sometimes it’s not the first and most obvious choice; it takes a little creativity to establish. But unless you understand the value of a recurring revenue stream, chances are you’re not even considering it.
You may think it’s impossible to implement with your specific product or service, or perhaps you just don’t know how to establish your business as a subscription-based business. Maybe you’re more used to the traditional sales approach, where it’s all about cold calling and sending your sales team out to visit the customers.
If you feel this way, you’re not alone. Not only do a lot of business owners fail to think about how to implement recurring revenue, they also fail to understand the value of recurring revenue in terms of the bottom line and the value of their company.
The value is not to be overlooked, however. Recurring revenue creates a level of predictable sales, something buyers are interested in. By not seeking ways to implement a recurring revenue system, you’re limited when it comes to creating a valuable business that will offer a lucrative return on exit.