00:01 Hi, this is Daniel Audunsson here and this week I wanted to do a video for you talking about how to improve cashflow in a private label business. So this is a question that I've been asked many times and it's because it's one of the most important elements in a private label business and potentially one of the biggest problems or bottlenecks, constraints on your growth. So whether you're starting out and you have a limited amount of cashh to work with, or if you're scaling up and you're growing the business, you're most likely dealing with a finite amount of cashh. So how well you can actually utilize your cashh has a massive impact on how quickly you can grow your business. So it is actually an incredibly important element, like an incredibly important piece to this puzzle of running a successful and scaling a successful private label business.
01:00 And it's a very important element of the business to actually pay a lot of attention to and focus on and look to optimize and improve. And I would say it's one of the most important parts in a private label business. And really any business that carries inventory. So you put the cashh into inventory and therefore your cashhflow is a bit stifled, right? It's a, yeah, it's a potential bottleneck in the business. So what I want to do is I want to show you this diagram that I, so my clients, and it's basically like the formula of how this works in a private label business. So it's basically how, yeah, how this works. So what we have here, I call this cashh outflow and inflow. And really what we have here is this cashh cycle. So the cycle that the cashh that you have travels through to produce a profit and grow your business.
02:01 And the way this works is that the length of your cashh cycle is correct. Incredibly important. You know, this is the turnaround time and basically, you know, the faster that you can turn your cash around and the bigger the profit margin, the faster you can grow the business because it's time you turn the cycle your business and basically the cash in the business. Now, assuming you know, you have a finite amount of cashh you bootstrap from, from the ground up, you know the amount of cashhs that you have on each cycle is really like the size of your business. So if you want this to grow, you need to also have a profit margin to make it bigger each time. But you also need to turn this around as quickly as possible. And we have a couple of important elements that make up this cashh cycle.
02:50 And really, you know, this is like the formula for cash in the business. And first of all, we have outflow. So this is the cashh flowing out of your business. Meaning when you get paid, you know, how quickly do you get the cashh like back in the game by paying your suppliers, getting more products made. So either new orders of existing products or, or uh, new products. And also how long is your lead time. You know, that is a critical variable in this, uh, in this formula here is, is lead time because in a private label business where we have contract manufacturers make our products with our brand thing on them, like logos, packaging, things like that, lead time can take a while. So it's really critical that you do whatever you can to make lead time as short as possible because lead time might be the biggest part of your care cycle.
03:43 So the biggest variable that determines how long your cashh cycle is. So it has a huge impact on how quickly you can grow your business. And it blows me away. You know, it seems like not a lot of people think about this, but it's critical. You know, you have to consider this and basically do what ever you can to, for example, decrease your lead time and this and those, optimize the outflow of cashhs in your business. And there's a lot of things you can do to improve not only your lead time but also your efficiency here and you know, so you have to ask yourself, for example, are you like, oh damn, I forgot to pay my supplier last week. You know, that kind of stuff is not good. These are unnecessary delays that linkedin the care cycle within your business and basically make it so that your business has grown slower than it could.
04:36 Now we also have a then inventory and this is what I call the gap. So basically the time that you're cashh is tied in inventory is what I call the gap. So of course you want to make this gap as short as possible, meaning that you get cashh flowing back into the business as quickly as possible. So from the time that you receive your inventory or is you want to sell it basically as fast as possible. The faster you can do that know the shorter the cashh cycle is going to be and that's a good thing. And you might have an issue as that generating those sales so that this gap is really long because you're not generating sales quickly enough or you might have the opposite problem where you're generating sales at ease and quickly and oftentimes for our private liberal business on Amazon, this is actually the cashe.
05:28 You know, you're not struggling to generate sales, especially if we're growing, but you might be struggling to just basically have enough cashh to like run the cycle and you know, um, that kind of thing. And actually the cycle, you know, might uh, have issues and things. I, I'll mention a bit more about that later in the video, but basically with inventory, the gap is that, right? So you want the gap to be short, so you want to increase, um, basically your, this, your sales and just sell as quickly as possible. It's sort of self explanatory here. So if you're not able to sell your inventory and it's stuck, then you have a long gap and that's bad. Right? It makes the cashh cycle longer. So the cashh is stuck. And this is why it's not always good to put your cash into products that don't sell.
06:19 You know, you don't want to invest and put your cashh into a balance of products that are stuck in inventory. Cause no, your cashh cycle is, is long. And the cashh utilization in your business is basically really bad, which means that your business isn't gonna grow as quickly as it could if you use the cash better. Um, and then finally we have inflow. So this is when you get paid, right? So this is when a sales occur, when payouts occur from Amazon, and there's actually things you can do so that you could pay it out faster and things like that. But then obviously this is related to generating sales, right? And making this gap in between where you receive an inquiry and you get basically rid of inventory, a shorter, and then you get paid as quickly as possible as well. Because when you're selling on Amazon, it's not just selling.
07:13 The inventory is also getting paid. So if you could get paid every day, it's going to, you know, dramatically basically decrease the length of your cashh cycle versus you know, just getting paid like every two weeks. Cause now my Linkedin, the cashhs, I go for a part of your inventory by like two weeks and 10 days, seven days, right? Versus just being immediate, the payout. So, um, this stuff is really important considering, you know, if you're even like looking at your banking and things, how this is, is flowing, right? So, uh, you want to be then able to basically get the cash that comes in and get it out as quickly as possible as well. So the care cycle is shorter. Now, one more thing is the profit obviously. So the turn around the length of the cashh cycle is really critical, right? But the profit margin obviously with, I probably don't have to tell your bodies is key as well.
08:09 So the higher the profit margin and obviously the faster you can grow, but it's the combination that matters. So the formula really for cashhflow in the business is the cashh cycle. So the length of the cashh cycle and your profit margin. So what you want is you want to decrease the cashh cycle, the length of the cashh cycle so that the cashh cycle is as short as possible and you want to increase your profit margin as much as possible. So if you can do both, you can have like a short cashh cycle and a high profit margin. That's the recipe for a business that can grow really quickly. And so that's what you want to look to optimize at all times. You know, you want to obsess about the profit margin, uh, within your business and for your products. You don't want to do everything you can to cut costs and it'll raise prices of possible was the within reason.
09:07 It shouldn't really decreased like their sales volume and things like that. But you want your profit margin to be as high as possible. You want to purposely select products obviously that have high profit and margins because that's basically the formula that you have in the business. If you select products that have like a low profit margin and a really long cashh cycle, you like the recipe that you're working with in that business. If you're bootstrapped. So we have a finite amount of cashs is basically one that doesn't allow you to grow that business fast. You know that business isn't going to be able to grow very quickly because it's gonna to take a long time to turn around your cash and on each cycle you're only going to grow. You know, let's say it's 10%, so it's slow growth. But if you had um, a cashh cycle though was much shorter, maybe like 45 days, 30 days in total with shipping and everything and his private label, uh, plus you had like a 40 or 50% profit margin, you know, that's a really good recipe.
10:09 That's a business that if you're able to generate consistent sales and you have like evergreen consistent systems and obviously Amazon is an incredible platform to make this happen, then you know you have the recipe basically in a good position where you can just rinse and repeat this cycle and each time your business basically grows. Let's assume it's simple, you just have one product. I was the same principle applies if you have many products, but if this is the cashe, you know your business on each cycle, like every 45 days, let's say grows by like 40% so let's say your profit margin is 40% and your uh, your cashh cycle is 45 days. This means that every 45 days, if the cashh cycle is a hundred percent perfect with this obviously isn't going to be right. So influent old flow is perfect, all of that. Then every 45 days you would grow the business by 40%.
11:05 Versus like, let's say your lead time is 90 days and your profit margin is 10%. Then every 90 days you only grow the business by 10%. And you know, I encourage you to extrapolate this data over time and like a spreadsheet and see how much bigger that, uh, first business would be after like two or three years. Then the second business with the, uh, long cashh cycle and the small profit margin and it's a huge difference. It makes all the difference in the world. And really if you want to grow a private level business quickly, you need to have both, you know, a shorter forecashh cycle as possible and as high of a profit, moderate margin as possible. And obviously there's things you can do to further enhance this, um, a cashh cycle like, um, getting, you know, cashs injections, like lengths of credits for the business.
11:57 Uh, you can also see, um, get net payment terms for suppliers and different things like this. So actually there's a ton of things you can do to positively impact the cashhflow. In Your Business. So it's not this like a thing that's set in stone and there's nothing you can do. There's actually dozens or ways to analyze and work to improve and optimize the cashhflow within a private label business. And you know, that's something that I help a lot of my clients with because they're in scaling up mode. So this becomes really critical. Uh, when you're, you know, when you have a successful business, you can sell your products and you're just wanting to basically, you know, grow and then this cashs cycle and uh, your profit margins and things like that become even more important. Uh, and yeah, so I think, think that's all I wanted to, to share with you.
12:54 So this is the, the uh, the formula really forecashh flow in a private label business. And again, there's a lot of things you can do to improve this, um, the cycle and the profitability of your business. And keep in mind, you know, we're not just talking about profit, uh, on the product level. Also on the whole operations, you know, cause if you have like a 30, 40% profit margin on your products, but then, uh, your operations are really wasteful and you're, you know, uh, paying a bunch of people money to produce a little old Perth, then it's inefficient. You know, you're only gonna net on the operations on the business. You might have a much lower profit margin. So that is, you have a profit margin that counts. It's not what's on the products that I was, is important in the first place. But really the profit margin that matters when it comes to turning around cash and the business is obviously net operational profit margin cause that's the money you basically generate as a profit.
13:55 And you know, you, uh, basically are growing the business as a result, right? So you have to look at it that way and that's why it's not just what's in this, you know, cashh cycle in terms of what I show you here, like the uh, you know, the outflow and inflow elements and the gap, the inventory, um, and then the profit margin. It's also like operations and those types of things. And in high effective, your paid advertising is, there's so many things and it is all connected. It's all one big system. And this is why it's really critical to consider all these elements and understand how this formula works. Because if you don't understand how this formula works and you're not tuned into it and you're not seeking to constantly optimize and improve all of these elements within your business so that you have a really effective and efficient business, then you might be like working like a slave, you know, every day working hard at it and sort of like hitting your head against the brick wall, you know?
14:58 And, and the sad thing is that you might not realize why, you know, why the business isn't growing and moving us as you'd like it to, you know, and it might be because the formula and then the business just doesn't allow it to like in terms of the cashhflow, basically, you know, the cashh flow could be the thing that's really a huge constraint on your business. And you just looked at it, uh, you know, clearly it with clear eyes, you would see that, well, actually in this situation, you know, I don't have mud. So the chance to grow this business and definitely not as quickly as I'd like to perhaps. So then it's time to seriously consider these inner workings of Your Business and find ways to improve them. Uh, so you can actually grow the business as fast as you want to make a profit, the money that you want and hit your goals and have the business that you ultimately want as quickly as possible.
15:51 So I hope this video has been really helpful in, in a set some light on some things that I feel aren't really being discussed then and are so important, but almost no one is paying any attention to. Um, so I hope this has helped you, uh, you know, see these things more clearly. And what I'm gonna do is I'm gonna give you this diagram. So below this video there's going to be a link so you can actually access this diagram that I just shared with you. Um, this thing right here that I printed out, uh, and you can actually, we're done with this to your computer and you can print it out and you can have it like on your desk or you could actually put it on your wall if you want it to, to serve as a reminder. And you could actually do a, you know, like a theme within your business to really improve the cashh cycle.
16:37 I think that's a really healthy exercise for most private label businesses that you know, that I've been exposed to basically. So again, hope this has been really helpful and uh, as well, if you are scaling up, if you're looking to grow your business, you're, you know, you held private label business on Amazon and you're looking to grow this business as quickly as possible and grow it faster and more efficiently and more reliably. Then I'm also gonna put a link below this video so you can actually, um, uh, schedule an appointment with me or someone on my team and you can talk with us and see if we can actually help you with that. So talk with us and see based on your current situation, if we can help you grow your business faster cause we are going to be able to tell really quickly by having a conversation with you, what elements you might not have really, you know, tapped into and you may be under utilizing and you may not be as leveraged and you just may not be as efficient and all of that as possible.
17:39 There's a lot of potential things that we can help you do so that your business can grow faster and more profitably. So, uh, and w while I include one more as well, so if you want to learn more about, uh, cashhflow and different systems like that, like more of the fundamental things in a private label business, I'll also include a link below the video where you can access a free cashe study and you can learn a bit more about these things that we help sellers with that I believe are really, really important for anyone that's serious about growing a successful and highly profitable private label business in 2019 and beyond. So that's it for this video. Again, those three links for your resource, the free diagram for free, available below the video, uh, a link. If you want to schedule a free consultation with me or someone on my team about growing your business faster and more profitably, or if you want to check out the free cashe study that's also below this video. So that's it. I hope you enjoyed the video and you've got a lot of value from it and thanks for watching. I'll talk to you again soon. Bye for now.