Sealevel Insights // The Daily Small Business

Today we can finally apply everything we've learned this week and see how the knowing CCC can help. In this episode you'll see how to shorten your CCC. And you want it short. Understanding this is directly correlated to keeping cash in the bank.

Understand this, and you will be in the top 5% of small business owners and gain a huge advantage over your competitors as you control lifecycle of your cash.

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Sealevel Insights

Josh Rosenthal, founder

DSB Podcast - dsb.today/podcast

DSB Videos - dsb.today/youtube

Sealevelinsights.com

Burn rate

Today is the last input in the CCC - DPO (Days Payable Outstanding). How long does it take you to pay your bills? It's simple and its the last thing you need to know to calculate your CCC.

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Sealevel Insights

Josh Rosenthal, founder

DSB Podcast - dsb.today/podcast

DSB Videos - dsb.today/youtube

Sealevelinsights.com

Burn rate

We address the next metric in the CCC formula today - Days Sales Outstanding. It's simple. This is the average time it takes for your customers to pay you after they've received the product. One step closer to running the CCC and controlling it.

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Sealevel Insights

Josh Rosenthal, founder

DSB Podcast - dsb.today/podcast

DSB Videos - dsb.today/youtube

Sealevelinsights.com

Burn rate

In order to calculate your CCC you have to understand the inputs into the formula. The Days Sales of Inventory tells us how many days of inventory your business holds on average on any given day.

We like quick CCCs. We can't control the CCC unless we actually understand it. If you can sell through your inventory more often (increase sales or decrease inventory) you will see a quicker CCC.

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Sealevel Insights

Josh Rosenthal, founder

DSB Podcast - dsb.today/podcast

DSB Videos - dsb.today/youtube

Sealevelinsights.com

Burn rate

The Cash Conversion Cycle speaks to the give and take of cash in your business. I think of it like the tide moving back and forth on a beach. It's different in different seasons. If you can understand your business' CCC, you can then start to pull the levers on it and shorten it if need be. This means you can move cash out of your business and back into it faster.

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Sealevel Insights

Josh Rosenthal, founder

DSB Podcast - dsb.today/podcast

DSB Videos - dsb.today/youtube

Sealevelinsights.com

Burn rate

Understanding IRR, ROI, NPV, and all the other finance abbreviations is important in helping you understand investing in your business, new projects, new assets, and more.

You don't have to be an expert, but you do need to absorb the lingo and be able to engage intelligently about it. It could be the difference between you growing or stagnation.

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Sealevel Insights

Josh Rosenthal, founder

DSB Podcast - dsb.today/podcast

DSB Videos - dsb.today/youtube

Sealevelinsights.com

Burn rate

We're in the weeds here. But we have to play around here for a bit to understand some bigger concepts of ROI and IRR. And why IRR is the better choice when assessing a potential investment. The key to this is found in the NPV. The ROI doesn't solve for the NPV. The IRR does. Meaning, time matters when considering returns.

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Sealevel Insights

Josh Rosenthal, founder

DSB Podcast - dsb.today/podcast

DSB Videos - dsb.today/youtube

Sealevelinsights.com

We determined that the ROI is vague. People don't always understand it. In general, everyone wants to know what their return is going to be on cash they put into a business. But we need to factor in the length of the project and solve for it.

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Sealevel Insights

Josh Rosenthal, founder

DSB Podcast - dsb.today/podcast

DSB Videos - dsb.today/youtube

Sealevelinsights.com

Everyone wants to know what their ROI is going to be. But the terms is too vague. It means something different to everyone. And most of the time it just means a simple interest calculation which isn't really a helpful calculation in vetting an investment opportunity. It's too limited.

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Sealevel Insights

Josh Rosenthal, founder

DSB Podcast - dsb.today/podcast

DSB Videos - dsb.today/youtube

Sealevelinsights.com

It's compelling, I know. Your Point of Sale system tells you that you qualify for more money than you've ever taken before. And it will be in your bank account tomorrow! I've done this several times. It really will be in your bank account tomorrow, but be careful. Nothing will sink you faster than this money.