Irrespective of the stage of a business's life cycle,
managing the working capital is extremely important. During
the growth phase, many businesses have failed due to growing too
rapidly, and not having the corresponding cashflow to keep up with
the expanding needs of the business.
Meanwhile, mature businesses need to maintain sufficient working
capital to ensure funds exist to meet liabilities as they fall due
and to take advantage of business opportunities as and when they
arise.
There are two fundamental questions a business should ask itself
when managing working capital. The first is how much working
capital is required and the second is how should it be funded? A
good indication of the working capital requirements of a business
can be determined by the "cash conversion cycle". This is
the length of time from the purchase of inventory to the receipt of
cash from customer sales. The length of this cycle can be
influenced through the management of debtors and
