Effective Cash Flow Management with Robyn Johnson -
Effective Cash Flow Management with Robyn Johnson

Robyn talks about her experience and effective cash flow management. She also discusses the debt and cash flow forecasting.

Effective cash flow management 

Robyn’s team has been coaching high-volume sellers for about 5 years now. 

Most people have an issue with cash flow. 

  • Borrowing more money does NOT usually fix the issue. 
  • Hiring your mum to help with packing will not help your overhead 
  • Not understanding your margins and your breakeven. 

“5-hour challenge”

  • Identity breakeven point
  • Identify the inventory that is not moving. 
    • What % is there under 90 days
    • Surpassed inventory

If you don’t manage the cash, the cash will manage you. 

To create an effective cash flow management, you need to separate out operating expenses from inventory cash. 

It’s not just smaller sellers who struggle with the numbers. Had $5M seller who did a VIP day – hadn’t filed taxes in 3 years and had no P & L at all!

How do you calculate the working capital required? 

What is working capital

Robyn does not have an MBA background or a CPA.

Most of us are accidental entrepreneurs. 

In the Amazon world, we use things in a different way to strict financials!

Keep inventory flowing, cover expenses to achieve effective cash flow management.

The higher your expenses and the lower your margins, the more you need to manage your cashflow. 

Rolling cashflow

Think about 13-week rolling cashflow – in 13 weeks, I’m going to be negative in cashflow

So I have 12 weeks to figure out how to cover that

– lower expenses

  • Bring in more income
  • Lower outgoings 

On Friday you have $42 in an account and on Monday you have $42,000!

Small plates

Mike M recommends you break things into a smaller plate – you’re more acutely aware it’s a finite resource. Like the envelope system for business. 

So non-analytical people will be happier with it. 

When you need money, it gets very expensive!

Debt

Debt can be a wonderful tool. It can be used to build or to destroy. 

It can be an amazing tool to build a business.

Robyn’s business owners with no debt have fewer sleepless nights and less stress, but 

They slow the growth of the business. 

How do people end up in excessive debt?

There is a myth that more inventory is better. That is not quite right. 

Robyn’s seen people go from $1-5M in a year in revenue and making LESS money!

What usually happens is that things are moving, because growth sucks cash, you know you’re making money but you don’t have any cash left in the bank!

So Amazon or a bank offers you large money eg $300,000!

It’s great for the 1st 3 months, you feel things are finally on the move. 

Between 2-4 months later, if you haven’t managed that cash well. 

If the inventory doesn’t turn over quickly enough, you’ll struggle to meet the payments 

Then you’re out of cash now. 

And then you take a bridge loan – I just need a loan in 3-6 months. 

After 3 months, you take another loan and aren’t paying down credit cards. 

But you have to keep buying stock. 

Hidden, private pain

In PL world esp, everyone shares their wins, not their losers. 

Eg Joe made 6 winners – and $100K

But we don’t know how many losers Joe had and how much profit. 

This means that people feel “It’s just me.”

Robyn’s experience 

Most businesses go through a period where cash is tight!

Robyn hired a bookkeeper who didn’t check cashflow!

Debt – is there a way back from $50-100K?

You can’t get out of a hole by keeping digging

It takes a long time and is painful. 

It takes 2 weeks to make bad decisions and two years to come back from them. 

How to avoid this scenario!

Average ROI calculator – this shows your breakeven point

bestfromthenest.com/calc 

(This makes a number of assumptions)

Let’s say you need to make $2500 a month to keep the business alive. 

If you have 30% ROI a month, you’ll need to make at least $16,000 gross sales

Which means I need to spend $8500-10,000 a month to just break even. 

So if you have not enough capital for that, you’d need that in the business. 

  • If you put the ROI up to 60%, it would halve that number. 

Gross margin is not your business profit – know your breakeven point!

If you’re making $5 a unit gross profit and selling 1000 units/month,  but have $5000 expenses/overheads per month, that is just there to cover your overhead. 

You need to know your absolute minimum!

Do you have enough capital to handle these increased expenses?

Every time you spend money on something that is not inventory, you’re upping the amount that you have to make from your product sales. 

Do you have enough capital to handle these increased expenses?

Robyn uses her calculator bestfromthenest.com/calc 

She’ll work with her CPA/accountant too because the tax rules come into play. 

If you wanted to bring him $X this year,  You’d need to calculate monthly expenses, profit and incidental costs using the calculator. 

Put the info into the calculator requested. Then you’ll know how much you need to spend to get to your goals. 

You may find that if,  for example, right now you’re sourcing 50K/week, you need to go up to 75K/week. 

You may need to stair-step it up in terms of cashflow. 

Cash Flow Forecast

To do effective cash flow management, a lot comes down to forecasting. 

Jan had x sales, y inventory

Feb, March, April

Now if I project May, I’ll need 400K in inventory to make 200K in sales because I’m turning half of that stock into sales

Inventory turn is huge

Look at what % of your inventory has been there under 90 days. 

Basic targets: 

At least 60% of it should be under 90 days. 70% if PL. 

OA, wholesale, 60%. 

If you take a loan and you don’t look at how inventory is turning over, you’re in a dangerous position!

Debt specific dangers

Cost of interest

Are you accounting for the cost of interest? 

Is your product still profitable after interest? 

Balance sheet

On your P & L, there are certain things that don’t show up. 

  • Interest is held on a balance sheet, not P & L 
  • And owner drawings are all on the balance sheet, not p & L 

To get an effective cash flow management, you can’t just use inventory lab, etc. as your financials. 

Your balance sheet tells you if you’re “upside down on your liabilities”. 

Your unsold inventory lives on the balance sheet. When it sells, it moves to the P & L 

You need to look at your liabilities, Your current assets eg 100K in inventory, And your current liabilities eg 75K 

Check your quick ratio [=(cash+receivables)÷current liabilities]

Margins

Review your gross margin, your net margin, with your accountant. 

30% gross margin is recommended as an absolute minimum

Target 15% net profit but as long as you’re above 7%, you’re okay. 

Lower net profit means there isn’t much room for mistakes. 

Cyndi Thomason Book-keeper 

“Profit first” book for  amazon sellers

bookskeep.com 

If you’re in a debt spiral…

  1. Check your stale inventory first
  2. Stale inventory
  3. ROI

Stale inventory

Most of the inventory at amazon should be under 90 days old for PL. 

If you buy too much or at  a low margin, you’re in trouble

Managing Expenses (overhead)

All subscription-based services will take you back – cut them temporarily. 

Do you need all your labor?

Do you need a large warehouse?

Raising ROI

How do I get more out of this?

It’s tempting to get a loan to fix it. But this is not usually the answer. 

You need to get a detailed plan rolling a 13-week cash flow projection. 

You need to update the cash flow every week. 

RESOURCES

5-hour challenge (free) 

You’re going to identify

  • Is my business healthy? 
  • If not, what direction do I need to go to 

www.amazingfba.com/5hour 

Profit first methodology – Mike Mckalowitz 

He is doing to be the most prolific business author – 6 NYT bestsellers

“Profit first”

“Clockwork”  

“Pumpkin plan” for coaches

Put money for inventory into account A

Put money for overheads into account B

Cyndi Thomason

Cyndi Thomason Book-keeper  “Profit first” book for Amazon sellers

bookskeep.com 

To contact Robyn

[email protected] 

Contact on LinkedIn 

About Robyn Johnson 

Robyn Johnson runs Marketplace Blueprint – for brand owners and agency owners and Bestfromthenest.com  for resellers, Private Label helps people sell more products online.