Sign & Digital Graphics

April '20

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5 2 • A P R I L 2 0 2 0 • S I G N & D I G I T A L G R A P H I C S Keeping a watchful eye on your company's cash flow is a wise practice The Quick and The Dead Vince DiCecco is a business training and development consultant and owner of the Acworth, Georgia-based business, Your Personal Business Trainer, Inc. He has been sculpting his sales, marketing and training tech- niques since 1979, and he has shared innovative and practical ideas on business management excellence for two Fortune 200 companies, the U.S. Coast Guard, and in seminars at many sign and digital graphics trade shows. Since 2003, YPBT has been serving small- to mid-sized companies in their efforts to strive for sustained growth and market dominance. Contact him via email at or visit his company website, T here is something to be said about running a business so that each decision enhances the company's image in the eye of potential investors—even if you don't offer investment in your enterprise to outsiders. From the largest corporation to the humblest of family-owned operations, every business decision can be measured against the effect it has on a company's finan- cials. Unfortunately, few take the time to view their companies from this perspective. When you consider the challenges any sign and digital graphics business faces—along with the unpredictability of today's economy—wouldn't it make life easier to obtain all the sound advice you can get? Smart business owners look for easy- to-use, laser-sharp indicators that will reveal, at a glance, the health and well-being of their companies. And my belief is that the two best such indicators to monitor are the cash-conversion cycle and the current ratio. Once we open up the books, sharpen our pencils, fire up the desktop calculator and define these two accounting gems, we'll be able to make much more informed decisions about how cash flows through the business. So, let's get started. As the Inventory Turns The speed at which a company can convert its expenditures back into cash is known as its cash-conversion cycle. Before you first hung out the shingle and opened your doors for business, you probably spent some money on things to get the company started—equipment, supplies, raw materials and the like. You probably either used credit or had to borrow the money to make those procurements. Since you can't repay your vendors and lenders with the potential profit on the sale of your wares, eventually you will need to take an order, fill it, deliver it and collect on the invoice so that you have the cash on hand to pay off your debt. Sounds simple enough, but during some months it seems like it takes forever for that cycle to run its course. The formula for cash-conversion cycle is the days inventories outstanding ( DIO) plus the days sales outstanding (DSO) minus the days payables outstanding (DPO). All of these components are easy to calculate by simply referring to your most recent financial statements—typically, for an entire year but not less than a 90-day period. You should be able to acquire this information from your accountant or accounting software, assuming accurate entries have been made into your general ledger. What you first need to know is the DIO or the number Make it Your Business B Y V I N C E D I C E C C O

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