The lifeblood of your business. Cash to a business, is like fuel to a car, without it you are going nowhere.
Businesses fail because they might be asset rich, but cash poor. If your money is tied up in assets and you can’t release cash to meet your regular commitments, your business might face liquidation.
We receive a huge order for producing our product and we then proceed to order the raw material. Due to being a new business we do not have credit arrangements with the supplier of the raw material and have to pay in cash. Raw materials arrive, we start production and two days later we try to contact the customer to arrange delivery of the first batch, but we can’t get hold of them. We send our sales person to their premises to find everything locked up, with a liquidation notice on the front door. We contact the supplier of the raw materials and they say since it is perishable they can’t take it back. We have our quarterly VAT return and monthly payroll, but now we can’t meet the commitments as we spend all the cash on purchasing the raw material. Eventhough we own the warehouse we operate from, and it is twenty times worth the cash we need to settle our commitments, we can’t sell it within 24 hours and even if we could, where will we operate from in future?
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