Lack of capital is often the most critical challenge that a successful SME faces as its very success creates this and it quickly becomes a vicious circle.
Without very diligent cash flow management and/or raising of more capital, including debt, the business often is constrained by capital as it grows. Often the profit in one operating cycle is insufficient to fund the extra working capital required for the next operating cycle.
This is especially the case where a business is either inventory or receivables intensive and/or the operating cycle is a long one. (The operating cycle is the average time that it takes from the first receipt of inventory to when the customer pays for the goods sold.)
This can be made even worse where capital goods are required to process the goods and the company cannot finance the acquisition of these capital assets. Many capable entrepreneurs cannot overcome the obstacles in their businesses cash flow cycle and cannot understand why bankers and other lenders often cannot provide the financing as the SME often does not have the security to support the debt.
The solution is often easier than most entrepreneurs realize. It often starts with a plan to see what your cash needs are and when your cash needs arise. Then one is in a position to manage it and focus on the cash management techniques most likely to be successful in your business.
Jun 8th, 2015
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