The Viscious Cycle of Working Capital
Staying Within The Boundaries of The Viscious Cycle Of Working Capital is Quite Challenging
As if there aren't enough figures dancing around the left side of my
brain these days, here's another concept that I need to have a constant grasp on if I want to stay on top of my business. It's not enough to make profit; I also
have to manage our working capital. Working capital is the cash that I
must have invested in our business to operate on a day-to-day basis
Effective management of working capital is crucial to the health of any business, including my own. Taking the time to conduct regular checks on working capital is an important task to ensure a healthy balance sheet and tighter management of cash flow.Working capital is a term used to define the short-term funding required to run a business at a particular turnover level. The basic breakdown of working capital for Ocean Omega is:
Cash at bank + inventory/stock + industry/ trade debtors + prepayments + sundry receivables, less industry/ trade creditors + accruals + sundry payables.The old cliche: growth is vanity, profit is sanity, but cash is king is the moniker that I must aspire to, if Ocean Omega is to survive as a thriving small business; in a very depressed economy.To turn a profit, as a small business owner, I have to be able to identify all costs of doing business. I then have to generate more in gross profit, so after paying all overheads the business has an excess, or a net profit.
Effective working capital management requires continual review and diligence in keeping adequate stock levels in addition to ensuring that the debtor collection and creditor payment functions are optimized. If I can manage this balancing act, while growing our gross profit margin, then our business will be running at optimum performance given its current sales.
Recent world wide demand for fish oil has required us to increase the cost
of a gallon of fish oil.Our shipping costs and product costs have gone up over
100 % percent during the past several months. As a commodity , the prices of fish oil fluctuates and going forward I hope for the price to drop some?
Working capital is a mostly hidden cost of doing business, and is
misunderstood by the majority of folks in business. I will always have working capital requirements, and the only way to minimize them is to stay on top of those areas of the business that give rise to them: our credit and collection policies, and our inventory management practices.
On average, 1 to 1.5 million tons of fish oil are produced worldwide
every year. As the growth in global aquaculture pushes demand up, however,
even this considerable quantity is hardly enough. Scarcity of supply means
that the prices for fish oil continue to rise.
Value Added Services and New Product Development can be a complex conundrum, when balancing costs of goods to determine a fair and equitable pricing structure..
Therefore we will continue to explore new product expansion, keeping within the boundaries of the viscious cycle of working capital
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