Determine the single greatest challenge to a small business’ working capital. Identify at least two (2) methods this small business could use to address the identified challenge. Provide a rationale for each method that you identified.
Small businesses face financial and resource constraints in the first stage of their organizational cycle. Cash flow is the engine of growth of any business. Liquidity- cash flow and developing effective working capital is their greatest challenge. Working capital in this context means that a business current assets is greater than current liabilities. Small businesses especially those in the first stage of operation face negative working capital which prevents their operation. Liquidity is a problem because most business have difficulty converting their assets into cash.
Two methods that can be used to address this issue:
Because funds are low for purchasing operational expenses, they can reduce their expenses and increase revenues. The revenues can be used to purchase inventory. They can also use working capital loan to manage their inventory/repair and business. Why? Knowledge of working capital makes business venture successful and it has direct impact on cash flow.
Strategic planning fort the next year and having funds available for unexpected contingencies is crucial for any business to survive.Costs and unexpected expenses do crop up. These two methods will help any business to grow and take advantage of opportunities.
Dec 18th, 2014
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