WHAT MAKES A BUSINESS WIMP
A business wimp (whether small business or large corporation) is a venture with inadequate Working Capital.
A business wimp will be forced to incur debt or inordinately prolong accounts payable so that it gets into trouble with suppliers. Not having adequate Working Capital will place the business in an unsustainable cycle of debt.
The business wimp has to borrow to finance Cost of Goods Sold and Operating Expenses. The interest expense will bloat Operating Expenses. There will have to be more borrowing to be able to pay suppliers (Cost of Goods Sold), pay salaries (Operating Expenses), and interest. The business will get to a point where it will be borrowing to pay for loans that are in arrears. Pretty soon, it will no longer be able to borrow and suppliers will no longer be willing to provide the materials need to produce goods to sell.
As important as the capacity to obtain appropriate financing is the capacity to take advantage of opportunities to grow the business. A business wimp will not have this capacity.
The owner of a business wimp will end up having to put up collateral from personal assets: house, car, etc. At the end of the day, the owner may lose not only the potentially profitable business, but other personal assets as well.
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Tags: accounts payable, cash recovery, inventory management, Small Business Finance, suppliers' credit, working capitalRelated Stories
POSTED IN: Accounting Concepts, Accounting for NonAccountants, Best Business Practices, Equity / Capital, Personal / Household Finance, Small Business Finance
2 opinions for WHAT MAKES A BUSINESS WIMP
Steve Coleman/Business Management Basics
Jun 13, 2008 at 11:43 pm
Ren,
Lack of WC can be a disaster for any business but:-
1. Lack of WC follows from lack of adequate business planning.
2. Even with adequate WC one needs some financial education to be able to manage the capital properly.
3. With adequate accounting management one can be forwarned of a pending lack of WC needed to meet pending expenses and so prepare.
Being prepared always makes life easier.
Steve Coleman
ren
Jun 21, 2008 at 2:36 am
Thanks for the add-on. And Benjamin Franklin agrees with you when he said: Failing to plan is planning for failure.
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