Key Performance Indicators

4. Working Capital

Cash generation is a major priority for most businesses. You control cash by controlling working capital - debtors, creditors, stock and work-in-progress.

4.1 Establish how much extra working capital is required to fund each extra ten per cent increase in monthly sales.

• If sufficient finance is not available, you may need to delay (or reject) large orders.

4.2 An effective way to control debtors and creditors is to produce an 'aged' list of debtors and creditors, every week.

• Any customer payments which are overdue, suspect, or simply large, should be highlighted and tracked.

4.3 Good stock control allows you to release cash, while still having the correct stock available.

• 'Stock turn' is the ratio of cost-of-sales to stock. If the figure decreases, find out why. For example, you may be purchasing stock which you cannot sell.
• The more you break down the stock figure into separate product categories, the easier it is to see where the problems are.