Improving Cash Flow Flashcards
Cash Flow
Money In –> cash flows out of the business to a purchase inventory –> inventories are sold for cash –> cash is brought into the business (back to the top)
Complication of cash flow
Buy inventory on credit
Sell on credit
Pay for expenses
To insure that there is sufficient supply of cash to cover expenses
The owner must take steps to increase gross margin and decrease expenses
How to improve cash flow?
Decrease cash invested
Slow the amount and rate of cash flowing out of the pharmacy
Increase amount and rate of cash flowing into the pharmacy
Ways to accomplish improving cash flow?
Proper control of inventory Maintenance of GM Invest idle cash Proper control of accounts receivable Delay of disbursements for accounts payable Minimize operating expenses
Appropriate Inventory size
Too much = too much money spent
Too little = may not be able to meet demands
Inventory Quality
Carry the appropriate inventory has the effect of reducing the demand for cash
Unsaleable inventory = cash invested, decreased inventory turnover and increase total inventory investment
80/20 Rule
80% of your inventory problems may come from 20% of your inventory or 20% of your inventory may account for 80% of your sales
How to apply the 80/20 rule?
Determine the overall sales dollars produced by each category of items
Break down the dollar sales into three specific classes
Quantify the number of units that were necessary to attain the dollar sales
Develop a chart
After you review your inventory, what should you be asking yourself?
Am i carrying the right mix, right amount?/
Can i reduce the slow selling items or not carry them at all (would i be able to get them quickly if I needed them)
Control shrinkage?
Merchandise that must be paid for but generate no cash income
GM
Difference between the price at which pharmacies buy merchandise and the price at which they sell it
How do you maintain improve shrinking GM?
Emphasize high margin products
Careful selection of third party contracts
Price increases,
immediately pass on manufacturer’s price increase to consumers
Failure to pass on = decreased GM = reduced cash flow
Decrease product costs
Take cash discounts
Utilize the lowest cost source
Participate in buying groups
