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The Working Capital Cycle

Many business owner approach me seeking funds because they do not follow the working capital cycle.

The cycle is simple and has a few very simple rules.

  1. Supplies are ordered
  2. Work in progress: turns supplies into inventory and makes them available for sale
  3. Finished goods are marketed to customers
  4. Customers buy and give you cash
  5. Cash then is used to buy more supplies
Here are the rules:
  1. The time from buying supplies to customers giving you cash should always be as short as possible.
  2. A delay in any stage has a cost; so keep the cycle tight and have plans in place to handle delays per stage in the process.
  3. Review each steps costs and look for ways to improve the speed the process and/or lower the costs
  4. Review your employee training for each stage; make sure each employee is clear on what they are to do as well as the frame they are expected to complete it in.
  5. Equipment maintenance is essential to avoid costly down time. One of the biggest and simplest examples I see of this is in retail when the credit debit card processing system goes down and they can not sell because they do not have a back up system. Their is nothing more frustrating than to have customers wanting to give you cash for your products and you can not accept it.
Robert Ritch

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