{"id":52049,"date":"2018-06-02T18:31:18","date_gmt":"2018-06-02T13:01:18","guid":{"rendered":"https:\/\/staging-imarticus.kinsta.cloud\/?p=52049"},"modified":"2026-05-15T14:18:48","modified_gmt":"2026-05-15T08:48:48","slug":"working-capital-the-heart-of-a-well-run-company","status":"publish","type":"post","link":"https:\/\/imarticus.org\/blog\/working-capital-the-heart-of-a-well-run-company\/","title":{"rendered":"Working Capital – The Heart of a Well-Run Company"},"content":{"rendered":"

Cash is King. But you don\u2019t realise it until you\u2019re short of it, and insufficient liquidity is why most companies go bust. Vendors will only be patient for so long before they pull the plug and you suddenly find you don\u2019t have a screw for the car, which means – you can\u2019t sell the car. A recent review by the America Small Business website shows that 82% of companies fail because of poor cash management.<\/p>\n

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\nAny company, big or small, can have large assets on their balance sheet but unless those are current assets, converting them to cash is extremely difficult. Working capital allows companies\u00a0to handle the regular expenses on a day to day basis.<\/p>\n

The working capital cycle (WCC) is the process of using cash to buy raw materials that you make into the finished product that you then sell for cash to buy more raw material…so on and so forth. There are two key questions here. Where do you get the initial cash to buy the raw materials?<\/p>\n

What do you do while you wait to sell the finished inventory? It is, of course, the proverbial chicken and egg situation.<\/p>\n

\"Investment<\/a>
\nSince you\u2019re not the only one in this situation, the global economy has it figured out for you. In general industry, norms will bend time just enough for you to pay for your raw materials once your finished goods have sold. So what that means is that your Accounts Receivables days outstanding (the moment from you sell your product to when you get paid for it) has to be significantly less than the Accounts Payable days (the grace time your suppliers offer you- often 30 days).<\/p>\n

This situation allows for a good working capital cycle. Alas, business is rarely that easy. More often than not your vendors want their payments faster than your customers can pay.<\/p>\n

Murphy\u2019s law. Managing this cycle is what sets companies apart. It\u2019s why retail is such a favoured game because retail is a cash-centric business. A company like Zara might pay its suppliers (raw material, outsourced vendors) within sixty days, but you have to pay for that crop top right away!<\/p>\n","protected":false},"excerpt":{"rendered":"

Cash is King. But you don\u2019t realise it until you\u2019re short of it, and insufficient liquidity is why most companies go bust. Vendors will only be patient for so long before they pull the plug and you suddenly find you don\u2019t have a screw for the car, which means – you can\u2019t sell the car. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_mo_disable_npp":"","_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[22],"tags":[],"class_list":["post-52049","post","type-post","status-publish","format-standard","hentry","category-finance"],"acf":{"youtube-url-id":"","publised_date":"","ls_key":"PG Banking and Finance"},"aioseo_notices":[],"modified_by":"Imarticus Learning","_links":{"self":[{"href":"https:\/\/imarticus.org\/blog\/wp-json\/wp\/v2\/posts\/52049","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/imarticus.org\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/imarticus.org\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/imarticus.org\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/imarticus.org\/blog\/wp-json\/wp\/v2\/comments?post=52049"}],"version-history":[{"count":1,"href":"https:\/\/imarticus.org\/blog\/wp-json\/wp\/v2\/posts\/52049\/revisions"}],"predecessor-version":[{"id":274211,"href":"https:\/\/imarticus.org\/blog\/wp-json\/wp\/v2\/posts\/52049\/revisions\/274211"}],"wp:attachment":[{"href":"https:\/\/imarticus.org\/blog\/wp-json\/wp\/v2\/media?parent=52049"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/imarticus.org\/blog\/wp-json\/wp\/v2\/categories?post=52049"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/imarticus.org\/blog\/wp-json\/wp\/v2\/tags?post=52049"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}