Case Study – How we helped one business turn their cash flow around

The Problem

A clothing retailer had been trading for 4 years. It recently opened a second store to achieve growth and profitability. Their revenue was $800k p/a with a profit of $65k p/a and a creditor balance of $214k with 3 of their major clothing lines that generated 78% of their revenue. Due to their poor payment history, the 3 suppliers were threatening to put them on stop credit until they got their balance back to zero. They had already borrowed $400k from family members to open the business and keep it alive. They were unable to pay any of the monthly instalments, were stressed to the max and working over 90 hours a week.

The Solution

We created a 12 month rolling cash flow for the business, as they did not have one in place. This was extremely difficult as their Point of Sale (POS) system did not interact with their financial Software, Quicken. By requiring the data for the cash flow, we solved the problem of the lack of integration between the POS and the financial software. Six strategies were implemented as a result of what we NOW discovered in the cash flow;

  • We designed our own tees, hats and shorts (for public holiday events coming up), got them manufactured overseas and sold them at a 135% margin – sold out with 2 weeks of delivery each time
  • We sold 65% of old stock through packaging them up with newer stock people wanted
  • We negotiated with 3 stores interstate to buy some of the remaining stock with cash paid in advance for it
  • We closed the second store immediately and modified the shifts of the workers
  • We prioritised creditors into 3 categories and then stuck to the 3 tiered payment terms that 100% of them agreed to with a written agreement coming from us
  • We did a makeover of the original store for better turnover of stock

The Result

The owners realised from their cash flow that the business model would not work without serious volume and more clout with the larger and well-known brands their clients wanted. They decided to move into manufacturing as there was a better margin, less risk for them and they had established some amazing relationships oversees with 2 companies that made the clothing they designed while giving them a huge margin. The retail business was sold to a competitor for an amount that left the owners with a $50k debt left to pay their family members. In the transition period (the following 6 months) of realising the position of the business through the cash flow to selling it;

  • The profit went up 305% (and the sale eventuated)
  • The 3 main creditors were paid 75% of their bills within 6 months and opened up their lines to the owners again
  • $350k of the $400k debt to the family members was paid back upon the sale completion
  • The owners went from working 90 hours a week to 43 hours a week
  • Stress levels dropped “a million %” and their original dream of designing their own clothing came to life

If you would like to learn more about how we can help you achieve your cash flow goal please contact Lynda n (03) 9744 7144 or email lynda@mcmahonosborne.com.au.

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