“Cash is king” is a maxim embraced by many successful entrepreneurs. Running a healthy business demands wise capital management, which means your cash conversion cycle — the time it takes to turn inventory into revenue — needs a well-rounded strategy.
E-commerce giants like Amazon benefit from negative cash conversion cycles because they sell inventory swiftly and receive upfront payments. But most spa companies and service providers face lengthier cycles and may be leery of tying up cash in extra inventory.
Yet companies like Concord Pools and Spas have found this strategy has helped them thrive.
Concord Pools and Spas
Concord Pools and Spas in upstate New York leverages early-buy incentives. By capitalizing on large-volume orders in the fourth quarter, Concord secures discounts that benefit its bottom line the following year. Early-buy submissions are typically due in November or December, and Concord’s vendors usually expect full payment by May. When determining the viability of early buys, Concord considers factors like order size, storage requirements and turnaround time.
Shipping efficiency
Order sizes for early buys vary by supplier and product, but shipping efficiency has the biggest effect.
“Savings on equipment is mostly due to pallets because those are easiest to move in and out of factories and into our warehouse,” says Gregg Pidgeon, Concord’s director of strategy. “We may not always receive a large discount upfront, but we are getting free shipping from our supplier, and we’re not bringing in multiple freight runs throughout the year.”
Before joining the pool and spa industry four years ago, Pidgeon owned a construction company for 15 years and was an IT consultant for Fortune 500 companies in Manhattan.
Infrastructure
Infrastructure is crucial when implementing an early-buy strategy. To promote data-driven decision-making, Concord upgraded to Lightspeed, a point-of-sale system that provides real-time inventory insights. Armed with this knowledge, Concord’s team can anticipate demand, maximizing the advantages of early-buy opportunities.
Concord also built a 10,000-square-foot warehouse to ensure it could take advantage of early-buy discounts, better price breaks and free shipping.
“Thankfully, we’ve managed our cash flow effectively and have some good line-of-credit options if we need a little help to get through certain periods,” Pidgeon adds.
Continuous improvement
One of the budgeting processes baked into Concord involves division managers justifying inventory proposals, which helps evaluate what inventory is needed and tracks turnover.
Maintaining excess inventory poses potential risks, but Concord mitigates this by implementing strict warehouse protocols and investing in personnel training.
“Inevitably, damage happens,” Pidgeon says. “But it’s happened much less since we put the time and money into our people. We’ve hired experienced logistics professionals from outside the industry and nurtured talent from inside our industry.”
Incremental savings add up
By focusing on shipping efficiency, infrastructure and continuous improvement, businesses can strengthen their financial position. Considering factors like long-term goals and current resources is important as well; there is no one-size-fits-all strategy when it comes to early buying.