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How To Keep A Negative Cash Conversion Cycle
Last Updated:  
November 3, 2022

How To Keep A Negative Cash Conversion Cycle

WORKING CAPITAL IS YOUR BEST FRIEND. BUT MAKING YOUR CAPITAL WORK FOR YOU IS FAMILY. LET ME EXPLAIN!

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At Obvi, we’ve used a very robust fin-tech stack from day 1. When they say no, you ask again & again. When building your path to profitability, always bake in 3-5% margin for fin-tech fees, you'll be surprised how much runway you can get.

While focusing on growing your brand and marketing, make sure to focus on building your fin-tech stack! Our fin-tech stack has earned me the ability to create a negative cash conversion cycle and keep our brand completely bootstrapped for over 38 months! We’ve done 37 million in revenue thanks to what levers we can pull through our fin tech stack allowing us to create better cash flow!

How We Keep A Negative Cash Conversion Cycle

While using TripleWhale for all of our online data and metrics, we use Bill.com to streamline our entire AP/AR process. This allows us to understand performance and cash management.

When it comes to expenses we use the Chase Ink Business Card for 2x Points on marketing alongside the Amex Business Gold Card for 3x points on all marketing spend! We then use these points to pay off the portion of the marketing spend bill at the end of each month allowing for a discount to our free cash flow.

Two of the aforementioned credit cards on a blank background

On top of that, we use the Parker Card layered with Plastiq to achieve Net 90 on most of our Ad Spend, including Facebook! Yes, NET 90! I don’t pay for any of our ad spend until 90 days AFTER we run the ads. This creates free cash flow for my business to scale for 90 days and build a large cash reserve from my top of funnel efforts on marketing.

On the inventory end, we use Settle and Upside Financing to extend our payment terms on our inventory by 60-90 days, while we made sure to consciously bake in 3-4% padded margin on my COGS when negotiating. Often times we are able to sell through inventory before payment on it is due, creating a negative cash conversion cycle on inventory, too!

Work With The Right Companies

What's important to learn about these tools is working with platforms and companies that just get it.

They understand the climate, they understand you. Think about how TripleWhale built its platform. Much of the suggestions and buildout comes from its customers, the brands using the platform. It’s important to recognize that part of scaling and creating strong cash flow is working with strong partners and tools that want YOU to build a strong business.

Negotiate Everything

One of the most oldest truths to achieving cash flow is Negotiate EVERYTHING.

I know, it can come off annoying. But till this day, I still ask my manufacturers if there is anything we can do to save $0.05 per unit on the next run. The key to this is that you NEVER stop. 3 years later we still ask our 3PL to find ways to save .05%. Remember, cash flow starts with how you cycle every penny that goes in and out of your business. A penny saved means two pennies earned.

Focus On The Metrics That Matter

My last key to focusing on cash flow is focusing on the numbers that matter.

Focus on New Customer Acquisition Cost. If you can keep this low and profitable, you can scale without having to burn cash. Focus on AOV. If you can keep this high and growing, you can justify spending and scaling at a higher rate without having to use cash to fund the scale. Focus on keeping churn low. Earnings customers is one thing, if you can keep them around longer, they make the value of each dollar you spent on them that much more powerful. Focus on providing a strong reason for retention, dont just expect it. Retention is the strongest fundamental piece to proving out a cash flow model because it is the one part to your business that comes without an added cost, so why not focus on it!

About the Author

Ron Shah

CEO & Co-Founder at Obvi

Ron Shah

CEO & Co-Founder at Obvi.

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