Sunday, June 12, 2005

The goal of the game............Negative Working Capital

With our up coming venture, I have a number of goals that I would like to achieve, one of them is a negative working capital operation (Ya, I know it sounds like the type of thing that you fantasize about night).

What is negative working capital?

Well, Jonny, I'm glad you asked. A negative working capital position occurs when products are delivered and sold to the customer before the company ever pays its suppliers for them.

Typically, it is hard for start ups to get into this situation, as they have to pay for all of their inventory up front and then wait to get paid from their suppliers, a situation that can see a company waiting up 120 to 150 days before cash comes back in.

Certain companies, mostly in the retail and consumer world, think Dell and Walmart, often run a negative working capital position, basically what this means is that rather than using a bank to finance operations, they are using customers and suppliers as the source of financing. In other words, they have kick ass cash flow!

If you want to get a little more information on negative working capital, take a look here.

Oh ya, if you come across a company with negative working capital and poor cash flow, its not a healthy company. This is the type of company that Prescott Thackery likes to help out


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