Maximizing Your Cash Flow: Mastering the Cash Pillar of Scaling Up

Welcome back to the Business Builder newsletter! In today’s issue, we’re diving deep into the Cash Pillar of the Scaling Up framework, focusing on how to optimize your Cash Conversion Cycle (CCC) to ensure your business stays cash-flow positive and ready for growth.

Estimated read time: 3 minutes.

Elevating the Cash Pillar: Speed Up Your Cash Flow

While the EOS framework operates with six pillars and works best for smaller companies, Scaling Up simplifies this with five pillars, providing flexible tools that scale according to the size and growth of your business.

A key component of the Scaling Up framework is its focus on cash flow, particularly through the Cash Conversion Cycle (CCC). The CCC is the most important KPI for understanding how efficiently your business is converting its investments into cash.

Focusing on DSO for service-based businesses

For service-based businesses like ours, where managing inventory isn't an issue, the most critical component of the CCC is Days Sales Outstanding (DSO).

DSO measures the average number of days it takes to collect payment after a sale. Effectively managing DSO ensures faster collections, more cash on hand, and ultimately, a healthier cash flow.

How We Optimize DSO

In our business, we calculate Days Sales Outstanding (DSO) using a straightforward formula from our finance system. It's the total accounts receivable divided by the total credit sales for a given period, multiplied by the number of days in that period.

Our target is to maintain a DSO of less than 40 days. A higher DSO indicates issues with collections from customers, which can impact your cash flow and affect your ability to pay salaries.

Finance matters

Even when your business is small, strong financial management is vital. One of the main shortcomings of the EOS framework is its lack of emphasis on finance. While EOS is designed to focus on specific areas and not cover every support function, finance is one of the most important.

Scaling Up addresses this gap by offering a wider range of tools and strategies to manage your cash flow effectively, making it a more suitable choice for businesses looking to scale.

I’ll keep sharing actionable insights on growing your business with the Scaling Up method.

Stay tuned.