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.
- Supplies are ordered
- Work in progress: turns supplies into inventory and makes them available for sale
- Finished goods are marketed to customers
- Customers buy and give you cash
- Cash then is used to buy more supplies
Here are the rules:
- The time from buying supplies to customers giving you cash should always be as short as possible.
- 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.
- Review each steps costs and look for ways to improve the speed the process and/or lower the costs
- 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.
- 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.