Wednesday, May 2, 2012

Working capital - the fourth M

If you wish to do business you must have the four M's. Men, Material, Management and Money.

You need working capital. This is the money with which we buy the goods that we sell or materials which we buy to turn out a product.

The working capital must be effectively used. Only the money that was obtained by using that working
capital should be spent and not the working capital itself.

If I bought an air-conditioner for Rs.20,000 with my working capital and sold it for Rs.21,000 then the
Rs.1000 is the money which I have earned and can spend for running the business. Imagine my paying rent of Rs.10,000 and say, wages Rs.11,000!

It would amount to killing the goose that laid the golden eggs, isn't it?

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