Successful businesses are able to turn cash into assets that generate revenue. The shorter the number of days between asset acquisition and revenue, the more cash the business has. In the digital business, the assets purchased or developed are in digital form and often non touchable. The digital business is unique in that unlike its product business counterpart, the cash generated during the cash development cycle could keep generating cash for years to come.
The cash conversion cycle attempts to measure the amount of time cash is tied up in the asset development and sales process before it is converted into cash either through product sales or affiliate income. This metric looks at the amount of time needed to generate revenue from digital assets, the amount of time needed to collect receivables from sales and affiliates and the length of time a digital business pays its bills without penalties.
As a digital business owner, work you do today should have the ability to keep reaping benefits in the future. This is because digital work is created once and sold multiple times. Even if your business is as customer specific as photography, you can create systems that allow you to sell one product multiple times.
Converting Work to Cash
In a digital business, an owner might pay for digital assets or create assets themselves. Either way there is cost involved, the owner’s time is very valuable and every work done in the business should be accounted for. The digital asset is used as a tool to generate sales. If the sales are generated from affiliate income, a receivable is incurred as a result of the transaction. The cash flow cycle measures the time between outlay of cash and cash receipts. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the businesses’ bottom line. The number of days it takes to convert work into cash depends on how solid your marketing system is.
One good thing about digital assets, is once you cross that first hump of revenue creation, income flows into the business more smoothly. Your new benefits are stacked with your old ones. Your finances grow exponentially as a result. The more digital assets you have, the more stacked up your income flow is. This means, if you plan right, you should have excellent cash flow.
Every product goes through an introductory, growth, maturity and decline phase. As a result if you want to be successful you have to keep innovating. There is nothing like stagnant growth. Your only have 2 choices: grow or die.
Future cash flow should be adjusted over time to account for the decline in income at varying phases of the product life cycle. Over time you will see how efforts today can accumulate income in the future as new efforts are staggered with the old. Of course the cash you receive will vary based on what part of the cycle your digital asset is in.
You cash flow cycle could help you see which of your products or services generates cash quickest. So if you need an influx of cash you know to focus on the assets that have shorter cycles. If there is an area that is churning cash pretty quickly, it might be worthwhile to take a loan to expand that area. Taking a loan to fund a business opportunity is worth it because a business opportunity increases the overall wealth of the business.
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