One of the items you need to get involved in when you start your business is how to fund it.
Working capital cycles or ‘cash-conversion cycle’ is probably more important than how profitable your forecast P&L says you are going to be. Many businesses have failed not because they weren’t profitable but because they couldn’t fund their cash flow.
This is even worse when you are new, growing or investing for growth. I thought it is worth looking at some strategies for helping with this.
In my ideal world, you would have a negative working capital cycle – meaning you get paid by your customers before you pay your suppliers. Unusual as this is a lot of retailers who manage inventory well and enter a market where payment terms with suppliers is longer (food retailing is a great example) can benefit from this.
Retailers such as Amazon successfully use this strategy to grow and are rewarded with a higher valuation than other peers in this sector.
So the question is, can you grow your business without having to raise capital to use for inventory?Tweet