what are some ways to improve cash flow? For context, the client is a biopharma company that makes pharmaceutical compounds.
I don't have a biz. background so could someone please provide examples of how to brainstorm ideas for this?
Upon googling, I saw there's operating cash flow, investing cash flow and financing cash flow, but what would be concrete examples of increasing cashflows under each? Or is there a better way to setup drivers of cash flow?
For case purposes, I would focus on the operational and investing cash flow, and not so much on the financiang part.
You have to break down the cash flow into its individual components, and then consider what can impact the major ones.
You have two types of things here. One is about improving profitability (more revenues, lower costs), the other is about changing when you have cash inflows and cash outflows. For the later, the most important things are usually about receiving earlier (client receivables), paying later to suppliers, and reducing inventory levels.
Once you have these covered, thing about the specifics of the industry. They tie up a lot of money on R&D for years before they can actually see any profit. So reducing how long it takes to take products to market (or how much you have to spend in doing so) can have a big impact.
Hope this helps, and good luck with your preparation.
Hi there,
Pedro nailed it. Cashflow is about:
In terms of actually improving cashflow in the context of a case, you need to bring in industry knowledge to break things down logically!
Expert case by
2) Also for getting early accounts receivable, is there anything you can do besides changing terms of the payment (eg 30 days to 10 days).
3) Same for delaying payment to supplier, can you just leverage goodwill, or say you'd order more next time or promise to extend contracting period etc..?
As I said, improving cash flow is part both about profit (revenues - costs) and part about the timing of your cash inflows and outflows. If you anticipate inflows and postpone/minimize outflows you will be at a better position.
So reducing inventory doesn't necessarily mean you will have lower costs, but it means you will buy later your supplies, and you will postpone labor until you need it (i.e., instead of incurring those costs now, you only incur them close to the selling moment).
I am sure there are other things that can be done in this regard, but honestly I can't think of one that would be particularly relevant for a life sciences company. As far as I know the issue in this industry is much more about the multi-year investments one has to do before seeing any revenue; and about making the most out of the IP one already has.