Oftentimes businesses will fail because their method of managing working capital

Question

Oftentimes businesses will fail because their method of managing working capital does not focus on the importance of sustaining working capital and managing the flow of cash through the business. Every new organization needs enough working capital to setup the business, pay operating costs, and continue to operate until payment arrives 30, 60 or maybe even 90 days later. However, if a business uses a lot of their working capital to pay for fixed assets, they may find they cannot pay suppliers, buy materials, or even pay employees' salaries. Discuss the importance of cash on hand and how it affects the strength of the business.  Would you agree that the amount of cash on hand is a factor when comparing like businesses?

Explanation / Answer

Cash on hand is by far the most important thing a business has. Sure, a business can use all of its cash on hand to pay off all of its debts but guess what? At the end of the day they will ot have enough funding left to pay their suppliers which are the life of their business, or perhaps they have just recieved a special order from someone. If they do not have cash on hand they will not be able to fufill that order and they will lose out on profit. It is indeed a very important factor when comparing companies. A company with cash on hand is more readily prepared to jump into action be it a new business deal or order shows up. A company without that kind of power will surely lose to due to these delays in cash and may potentially be swept up by the competition in a short period of time.

Hope this helped, good louck.

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