Manifest: The Cash Flow Project

In my last Manifest entry I stated that our "Finances are Fucked". While I'm a fan of hyperbolic language, the more accurate statement would be "Our finances are incredibly strong. Our cash flow is fucked.".

For the last month, we have been working hard to improve our short term cash flow challenge (hitting us for about four months from May - August). Before getting into where we're at now and our next steps, here's the message I shared with our leadership teams on Monday, February 6th. I hope the transparency here can help other leaders and entrepreneurs navigate similar situations, should you find yourself in them.

How it started...

Good morning,?everyone. I hope you all had a nice weekend!

To kick off the week and, for some of you, your employment with C&C Group, I have an important project for us to tackle, together... I'm calling it "The Cash Flow Project". As you'll read, below, I am going to provide a very transparent overview of the current situation and the strategies we need to implement immediately.

There has been one downside to our newly acquired Eyereturn business at MPL... the cash flow model. As a result, C&C Group is going to experience a challenging cash flow situation starting the week of April 17th that will most likely last until the end of fiscal 2023 (August 31st). Please note that, while cash flow will be concerning, our P&L (actual financial performance) is projected to remain incredibly strong. The silver lining here is that, once we have made it through these next 6 months, C&C Group's cash flow is projected to be the healthiest it has ever been. We are faced with a short-term cash in vs. cash out problem. In order to weather this storm, we need all of our company's leaders focused on these five key objectives, presented in order of importance:

1. Ensuring the accuracy of our AR/AP forecasting projections (esp. for Buying business)
2. Securing additional financing
3. Improving accounts receivable performance
4. Achieving sales targets
5. Avoiding payment slippage at the delivery level

1. AR/AP FORECASTING ACCURACY

We currently have the projected and actual AP and AR mapped out for MPL Buying (as well as the rest of C&C Group, obviously). I would like to see a meeting set up to go over our cash flow forecast line by line to ensure the current situation is 100% accurately presented both in terms of dollars in vs. dollars out but, also, that all formulas in our sheet are pulling through correctly (yesterday I found a sum error in the "cash from revenue line" that, when corrected, added nearly $700,000 in balance over the next six months .?Moving forward, I would like to see our Cash Flow Forecast (CFF) updated daily vs. weekly.

2. SECURING ADDITIONAL FINANCING

BDC has offered to finance a portion of our acquisition of [redacted] to the tune of $250,000. The issue here is that I have already accounted for this additional financing when reporting on our current state, above. In addition to this BDC funding, I will be working closely with our account manager at RBC and connecting with other Tier 1 banks to see how much additional credit we can capture.?Ideally, we will have an additional $750,000 lined up by the end of April.

3. ACCOUNTS RECEIVABLE PERFORMANCE

There are two key strategies we need to execute here:

1. While we conservatively map out AR to 6 weeks (42 days) from the date of invoice, we need to bring our?standard?receivable timeline down to 5 weeks (35 days). To accomplish this, we need to ensure a process is followed where we have one week reminders, one day reminders, and late notifications highlighting our late payment policy.?For context, through much of C&C's history, we have been able to keep AR under 35 days so this isn't an insurmountable task.
2. Due to legacy contract terms in our acquired buying business, many clients are on 60 day or, even worse, 90 day payment terms. We need to connect with each and every client to discuss what can be done here. Even small wins like moving 60 day clients to 45 days or larger wins like 90 days clients to 60 days will create significant positive cash flow outcomes.

4. ACHIEVING SALES TARGETS

Our Q2 Group-level sales target is $2.267 million. Today, we are at 82% of that target with 3.5 weeks left in the quarter. On the MPL side, we need to hit our February buying target. On the C&C side, we need to close two additional website sales in February and secure deposit payments in March.

Our Q3 Group-level sales target is $2.3 million, $1.3 million from C&C and $1 million from MPL. These are business as usual targets that sees C&C keep up its delivery capacity / project cadence with the current team and MPL working against the budget Chad and I put in place with the addition of the new buying business.?

While it's business as usual, I will be more scrutinous on our monthly and weekly performance targets through Q3 to ensure we don't have any slippage.

5. AVOIDING PAYMENT SLIPPAGE AT THE DELIVERY LEVEL

There are only three ways that we experience payment slippage from active projects / clients:

1. As discussed above, their invoice payments arrive more delayed than we project / plan for.
2. We fail to hit a deliverable milestone that is tied to a payment
3. Our clients are delayed in providing feedback or actions on their end that then delays completion of a deliverable with a billing milestone attached.

It is imperative that all project teams are prioritizing team capacity and task allocation against billing milestone deliverables (always but especially for the next few months). And we need to enforce our contract terms for when we are allowed to bill clients who cause project delays.

For the latter point, here, I want to stress that (A) these conversations should never come out of left field and we need to be highlighting this specific contract / SOW clause BEFORE our clients are signing off on them and (B) enforcing them should never feel like some sort of battle or confrontation with a client. If a client is delayed, this is par for the course in our business and we need to remain flexible to those shifting timelines (within reason) BUT we must decouple project timelines from billing milestones in these circumstances. Most clients will be understanding and take accountability for their delays, in my experience.

CONCLUDING THOUGHTS

I want to stress that there is no silver bullet strategy that will resolve our looming cash flow challenges. Rather, to have smooth sailing over the next four or five months, we need to execute all five of the strategies, above, and remember to follow a few of our core values in the process;?Craft with Passion, Be a Crew, Love the Journey.

As I said, initially, the silver lining is that even if we?didn't?improve short term cash flow (April - August), our long-term position is?already?the healthiest it has ever been in C&C Group's history. Regardless of what happens in the next few months, we will head into fiscal 2024 (September) in a strong position that will allow us to continue fuelling our growth, manage a recession without a great deal of stress, or most likely a combination of both. What we can achieve in the next 120 days will only further position us for long term success!

Thank you all for your hard work, I'm looking forward to tackling this challenge as a Crew.

Dave

How it's going...

While we still deep in the woods, it has been incredible to see what we have accomplished as a team in the last month. "The Cash Flow Project" has occupied most of my time and it has felt like I'm getting a finance MBA in the process. Stressful but rewarding.

Ensuring the accuracy of our AR/AP forecasting projections.

1. I can say with great confidence that we now have 100% accuracy in our AR/AP forecasting projections. A big thank you to our Finance Director, Sherree, and Operations Director, Michelle, for working overtime to make this happen.
2. We successfully secured $600,000 in additional financing. While this helps a lot, our target was $750,000 so there is still some work to do on my end.
3. We have been able to improve accounts receivable terms with 85% of MPL's media buying clients, shifting hundreds of thousands of dollars forward by more than 30 days at a time. This was a huge win and great work from our VP Revenue, Mark, and Sherree.
4. In February, MPL's sales were 101% to target. As I write this on March 1st, we have already achieved 100% of the month's target and should see 140%+ by the end of the month. This is a blessing and a curse as, even with improved AR terms, that success does create additional short term cash flow challenges. Across Craft&Crew, MPL, and Simple Story, we wrapped up Q2 sales at 98% of target.
5. For the most part, we avoided payment slippage in February. We currently have about $50k in overdue invoices (late on whatever the expected payment terms were), which isn't a big deal NOW but we won't be able to afford these kinds of slips in a few months.

All of our efforts this past month have shifted out the start of our challenging cash flow from the week of April 17th to the week of May 1st and reduced the scope of that challenge by 66%. I'll share another update on The Cash Flow Project next month.

The Elephant in the Room...

"Dave, did you not just take your team on an all expenses paid trip to Mexico? That seems like a stupid idea given everything you've outlined, above." Yes, we did and, yes, it is. But... the trip was booked this past summer / fall before the opportunity to take over Eyereturn's business ever surfaced. So, it is what it is. And what it was was a great fucking time. More on that in the next edition of Manifest.