Answer Book question
Enough to pay every bill between spending on inputs and receiving from customers. usually three to six months of operating costs for a new business, more if customers pay late. Compute your cash cycle: days of inventory plus days customers take to pay, minus days suppliers give you. Multiply daily operating cost by that number. Then add a buffer.
Enough to pay every bill between spending on inputs and receiving from customers. usually three to six months of operating costs for a new business, more if customers pay late. Compute your cash cycle: days of inventory plus days customers take to pay, minus days suppliers give you. Multiply daily operating cost by that number. Then add a buffer.
A packaging unit sells to a large company that pays in 60 days. Raw material must be bought on 15-day credit. Inventory sits 20 days. Cycle: 20 + 60 − 15 = 65 days. Daily costs ₹15,000. Working capital need: about ₹10 lakh. The owner had budgeted ₹3 lakh.
Working capital finances the gap between paying and being paid. It is not profit; it is timing. Underestimating it is the leading cause of early failure.
Inventory days Receivable days. realistic, not promised Payable days Daily operating cost Seasonality Buffer of 25–50 percent
Assuming customers will pay on time.
Large buyers in Kerala commonly stretch to 60–90 days. Plan for it and know the MSME delayed-payment rules.
65-day cycle × ₹15,000 = ₹9.75 lakh, plus buffer = ₹12–14 lakh.
A cash-on-delivery retail business has a short cycle and needs little.
Compute the cycle Multiply Add buffer Fund it before the machine
I have ₹25 lakh. Should I buy a machine or keep working capital? My customer has not paid for 45 days. What can I do?
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