1 © John Mullins, 2012 Butler Lumber: Epilogue Lessons Learned John Mullins London Business School

National Entrepreneurship Network 2© John Mullins, 2012 On Finding Cash for Growth Finding cash for growth is a central concern for every entrepreneur Going hat-in-hand to a bank is one way to find it Managing working capital and margins effectively is another, perhaps better, way to go

National Entrepreneurship Network 3© John Mullins, 2012 The Myth About Taking Cash Discounts The conventional advice: always take cash discounts But for fast growing companies, you can often grow faster by not doing so Potentially important when taking advantage of a strategic window that may soon shut

National Entrepreneurship Network 4© John Mullins, 2012 Another Common Error Offering discounts or easy terms to win new business Implications? – Cuts into margins – Lengthens your operating cash cycle – Thus reducing your SFG rate A better way: think how to invest such funds into new products or new capacity

National Entrepreneurship Network 5© John Mullins, 2012 Another Better Way? Raise your margins. How? – Strengthen your gross margin mix via selective pricing decisions – Buy better or smarter – Control operating costs But be wary of across-the-board price increases, which can turn off your customers

National Entrepreneurship Network 6© John Mullins, 2012 Why Is This Better? Improves profitability and cash flow Reduces demand to a level you can satisfy without taking on more debt (= financial risk) or new equity (= dilution) But there’s a drawback… – May open the door to competitors who will seek to fill the unmet demand.

National Entrepreneurship Network 7© John Mullins,2012 Implications for Managing Your Growing Business Building your sales force Pricing decisions Getting everyone on board to help you manage cash for growth

National Entrepreneurship Network 8© John Mullins, 2012 Implications for Building Your Sales Force Salaried people increase fixed overhead, tying up more cash over your operating cash cycle Commissioned or outsourced sales people conserve cash Which should you do?

National Entrepreneurship Network 9© John Mullins, 2012 Implications for Pricing Decisions It’s easy – but lazy – to set prices on a cost-plus basis Some products may merit higher gross margins than others – Razors and razor blades – Printers and ink cartridges priced like champagne Some kinds of customers may be willing to pay more than others for slightly different versions – Lawn mowers, toasters

National Entrepreneurship Network 10© John Mullins, 2012 Implications for Motivating Your Team It’s in everyone’s interest to create more cash for growth. Why? So, let everyone see your common size and cash-days analyses, every month Simple, intuitive, easy to understand

National Entrepreneurship Network 11© John Mullins, 2012 Perhaps the Most Important Thing about Managing Cash Well It gives you independence like nothing else can – No bankers bearing covenants – No investors whose funds are nearing the end of their lives

National Entrepreneurship Network 12© John Mullins,2012 As You Make Plans to Grow Your Business, Remember… It’s not about profits Cash is king! Managing cash for growth is everyone’s job, not your CFO’s!

National Entrepreneurship Network 13© John Mullins, 2012 I’ll Leave You with a Challenge… Sit down with your controller or CFO Take him through the hidden cash logic and the SFG method Send me an with how much hidden cash you free up!

National Entrepreneurship Network 14© John Mullins,2012 Questions?