This Is How We Tripled Our Cashflow Overnight
The Amplified Impact Podcast
September 17th, 2023
Today, I want to share a game-changing business lesson I learned while building Escape Climbing.
Starting this manufacturing business was a new ballgame for me. I was used to service-based companies like window washing…simple, right? Then there was the gym, another different game.
But Escape Climbing was unique.
Manufacturing meant handling raw materials, long lead times, and massive capital outlays. Cash flow became a puzzle.
Here’s the kicker…we were offering net 90 terms to clients, meaning we waited 90 days to get paid. The result? We looked good on paper but had no cash. A big headache.
So, we made two simple tweaks that transformed our business overnight: Net 30 Terms & Supplier Negotiation.
Cash flow management, friends, can change the game. It’s not just about profitability; it’s about having cash to work with.
Negotiate, understand your cash levers, and master this game. It’s essential.
TWEETABLE QUOTE:
”
At the end of the day, it feels good as a business to have more cash on hand.”- Anthony Vicino
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Episode Transcript:
Anthony Vicino:
When we started building Escape, climbing, it was a different type of business than I had ever been involved with before. Before this, I had done, you know, the window washing company, which is a service based business where you, you don’t have a lot of overhead, you don’t really have inventory, you have workers, you have people that need to go and do the fulfillment. You have marketing channels to get the leads. But it’s, it’s a very simple business. I actually like it for, for new entrepreneurs because it’s like playing business on easy mode. You get to learn a lot of the systems and processes from there. I had a gym, which was, again, a very different type of business from the window washing, but still very different than the manufacturing company which we started, which I got involved with in 2016 or 17, building the product and then working on the fulfillment, a physical product. It was very different than having the service that you’re fulfilling, or the gym, which is a different type of service.
Anthony Vicino:
You’re not really keeping products on the shelf, so to speak. And so I had to learn a lot, I learned way more in building the manufacturing company than I did probably in any other business about how big businesses really work. And one of the things that we really struggled with in the early days of Escape was the fact that we were a manufacturing environment, which meant that we needed to bring in a lot of raw goods and materials and then take that, transform it into a product and then ship that to our customers. And so there’s a lot of complexity in that whole process and that was a lot of fun to try and solve. But one of the things that really tripped us up for a long time was understanding the idea of working capital and how we could sink hundreds of thousands of dollars into raw materials. That might take months to get to us. In the case of when we would produce hardware, it would take six months from the time that we made, say, a $250,000 order of the materials before they even arrived to our facility and then be able to sell that thing over the next six months. So, really long lead times and you’re tying up immense amounts of capital.
Anthony Vicino:
And so it was a very different type of business than I had been used to, where that money management had never really mattered in the same way. It was go wash the windows, get the check, pay the employees. What’s left over is profit, right? It’s pretty basic here. It was like, okay, how much of this do we need to put aside to be able to cover the next outlay of inventory or product? And how long is it going to take to recoup that? And we started running to a lot of cash crunch issues. We started running to things where because we would outlay so much capital to get the inventory, and then it would take like a six month cycle before we sold through that. Plus we were selling to Big Gyms and other corporate customers who had net 90 terms, which meant they had 90 days to pay their bill. It created this cash crunch where on paper, we were making sales. We had the revenue to show for it, but the money had not yet hit the bank.
Anthony Vicino:
But the money was out of the bank to go pay for the inventory, right? And so we’re sitting here and we’re just like, man, we’re profitable, we’re growing, and yet we never have money in the bank. And it was very stressful because every month it was like, well, we have overhead that we need to pay like rent and our employees pay, so how are we going to cover this? And we had a line of credit. We had different ways that we could, things that we could tap into. But the most impactful thing that we did that changed the face of our business overnight was just a simple tweak. One simple tweak. And it was something that I alluded to before, which was the net 90 terms. We were doing a vast majority of our sales through selling to gyms, commercial environments, and they would put in large orders, 30, 40, $50,000, maybe 200,000 at the highest end. And what was typical in the industry was to offer net 90 terms, which meant the customer effectively had 90 days from the time that you made the and gave them the product to pay you.
Anthony Vicino:
So that’s three months before you get paid, after you’ve already sunk all the money into the inventory, you’ve created the product, you’ve already paid the payroll, the rent and all that stuff, it’s already gone. And now you got to wait another 90 days to get the money. And so you can see how that would really compound the issues for your cash flow situation. So the tweak that we made was to stop offering net 90 terms, instead just net 30. And we got a little bit of pushback from customers who were like, oh, it’s always been net 90 and others are doing net 90. And we’re like, well, that’s not what we’re doing. We didn’t really lose any customers over that, though. Once you had the conversation, they understand this is just the policy, then they got on board.
Anthony Vicino:
But what it did for our business was it overnight transformed and it shortened by two thirds the timeline in which we were getting paid. And so suddenly we were much more cash flushed than we had been before we could make better decisions, because it wasn’t born out of scarcity, out of this fear mindset of like, oh, we don’t have the money to do that yet. We have to wait until we can get that we could start pouring the money back into the business sooner. So that one tweak was massive. The other big tweak that we did because we’re working with a lot of vendors and suppliers, was once we recognized, wow, the faster we can get paid, the better. The reverse of that is the longer we can wait to get paid, or the longer we can wait to pay our bills, the better. It’s very simple, but same concept just in reverse when you’re trying to get paid, the sooner you get paid is better. When you’re doing the paying, the longer you can wait to pay, the better.
Anthony Vicino:
So we went to all our suppliers and our vendors and we just started negotiating harder. And they maybe all offered net 30 terms and we’re like, hey, can we get net 60? We’re going to be doing a lot of volume with you over the next year. Could we get this bumped up to net 60? And a lot of times these places would do it, sometimes they wouldn’t, but a lot of times they would. And whenever they would, it was a big massive win for us. And so the moral of the story here is one, you get what you negotiate for, and then two, if you don’t know what the different levers are that you can pull that are going to have this massive effect on cash flow situation for your business, you might go under simply with a profitable, growing business. You can go under just because you were paying your bills too soon and you were getting paid for your bills too late. That could be just the issue. And so if you can invert that get paid as quickly as possible and wait to pay as long as possible, then you suddenly find yourself with more capital to work with.
Anthony Vicino:
And so that was a very powerful concept. I had never encountered this in any of the previous businesses. It was a very different type of business and this might not apply to a lot of you guys, but this concept of cash flow management is important regardless of what type of business that you’re running. It is understanding this one thing starts to help you play the game, not just on the elementary level, but on the master’s level. So start diving into this. There’s some great accounts on Twitter that you can follow if you want to learn more about cash flow management or like different financial, what would they call it, financial engineering practices. It’s been massively helpful for us and now we apply this in our real estate portfolio. You can only imagine like, that is cash flow management on steroids.
Anthony Vicino:
So hope this brings a little bit of value, a different perspective maybe that you haven’t thought about in your own business before. It might give you some levers to pull to be able to make more cash. At the end of the day, it feels good as a business to have more cash on hand. You can never have too much. So it’s going to do it for me. Guys and gals, I appreciate you tripping over my words, but I do appreciate you. So thanks for being here. I’ll catch you back tomorrow.
Anthony Vicino:
Same time, same place? Yeah, sounds good to me. I’ll see you here. Until then, stay hyper focused, my friend.
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