BEATING THE ODDS IN SMALL BUSINESS by Tom Culley & Tom Culley & Katy Riegel

Author:Tom Culley & Tom Culley & Katy Riegel
Language: eng
Format: epub
Publisher: FIRESIDE
Published: 1996-07-15T00:00:00+00:00

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RAIDING A COMPANY’S HIDDEN CASH

Mining an Overlooked Trove: Working Capital

Talk about stretch targets: Could any corporation operate without working capital? The answer may surprise you. A fast-growing number of companies are setting that audacious goal.

But c’mon—zero working capital? It isn’t a fantasy…. Two diversified manufacturers boast negative working capital in some of their businesses….

“Working capital is the grease that keeps the [business] motor running,” says [a consultant]. It consists of inventoriesr—aw materials, work-in-process, and finished goods—as well as a company’s receivables [what other companies owe it] minus its payables [what it owes other companies]….

Reducing working capital yields two powerful benefits. First, every dollar freed from inventories or receivables rings up a one-time $1 contribution to cash flow. Second, the quest for zero working capital permanently raises earnings. Like all capital, working capital costs money, so reducing it yields savings…. It increases profits over the years, by lowering overtime, storage costs and other expenses—savings that persist year after year….

The most important discipline that zero working capital necessitates is speed…. It requires that every order and part move at maximum pace, never stopping…. As velocity rises, inventory—working capital—dwindles….

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