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resource box is included with article. If you do run my article, a courtesy reply to sean@bizmanualz.com would be greatly appreciated. This article is 603 words long including resource box. Thanks for your interest.The Cash to Cash Cycle Final of Series
Part One: Inventory
Part Two: Accounts Receivable
Part Three: Sales and Marketing
Part Four: Accounts Payable
In past four weeks, we've brought to light four key areas in which you can save $250,000 each -- for a total of $1,000,000. Point by point, we've shown you just how cash flows through these areas, making up Cash to Cash Cycle.
And as we've seen, cash cycle is undoubtedly single most important process to optimize for any business – from when you spend money to when you get money.
So now let's put it all together.
Cash to Cash Cycle Definition
By definition, cash to cash cycle is a financial ratio that shows length time for which a company must finance its own inventory. It measures number of days between initial cash outflow (when company pays its suppliers) to subsequent cash inflow (Accounts Receivables).
Cash Conversion Cycle and Cash Flows
One way to express this is length of time between purchase of Inventory (raw materials, etc) and collection of accounts Receivable created from sale of your product -- also called cash conversion cycle.
Why is this most important? Because this is your cash flow and because…
Operations Assessment and Working Capital
Businesses live and die by cash generated from operations. If your operations don’t create cash, then they consume it. A cash-consuming operation means that you have negative cash flow and you are living on financing (debt or equity). But Cash to Cash Cycle also shows you amount of working capital you have committed to your organization.
