The way you handle a cash flow crisis will determine the success of your business.
A knee-jerk cost-cutting exercise or an injection of credit can provide a short-term fix. But to stay in the game long-term, take the time to understand how the business operates. Look at what it does well, and how things might be done differently.
By adopting this approach, iconic surfwear brand Mambo introduced a new business strategy that not only resolved a cash flow crisis but set up the business for future growth.
What was causing the cash flow problem?
As a manufacturer, Mambo would take orders from distributors and then arrange for factories in China to make the products.
The factories wanted cash up front, but Mambo’s distributors didn’t pay until months after the product was delivered, says Director Angus Kingsmill.
What was your next step?
"We asked ourselves: ‘What are our core strengths in this building?’
"Mambo is a brand and it’s always been about the unique art and the irreverence in the marketing," says Kingsmill. "We didn’t actually have a fantastic pedigree in manufacturing or logistics."
"So we made a decision to focus on what we do best. That is to ensure we get the best artists in the country and the world and place some great art on clothing and let other specialists do the production," he says.
The result was that Mambo stopped manufacturing and moved to a licensing model, where it takes a double digit percentage of total sales in exchange for the use of its brands and designs.
And that’s been successful?
"Our margins are not what they were before, but the volumes are so much greater," says Kingsmill.
"We’ve got the ability to now expand globally where we set up similar licensing deals, provide the artwork and the style guide, add some marketing support to that, and then get a percentage of sales from all those different partners.
Now the business is no longer as dependent on cash flow. It is financed from within and debt free. The licensing arrangements also allow the owners to accurately forecast the coming year’s cash flow and profit and loss.
This is an edited extract of an article that first appeared in Company Director magazine.
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