1. Where your money actually is
At any moment a trading business has its capital in three places: stock on the shelves, money owed by customers, and cash. What it owes suppliers offsets part of that. The useful figure is stock plus receivables minus payables, and for most material shops it is a much larger number than the owner expects. Work it out once and it changes how you think about growth.
2. The credit cycle, in days
Count the days: how long stock sits before it sells, plus how long customers take to pay, minus how long you take to pay suppliers. In the material trade that often comes to sixty or ninety days, which means every rupee of sales needs to be funded for that long before it returns. Doubling your sales does not double your profit — it doubles the amount of money you have to find first.
3. Growth consumes cash
This is the part that catches people. A shop growing thirty per cent a year needs thirty per cent more stock and carries thirty per cent more credit, and both have to be funded before the extra profit arrives. That is why fast-growing shops borrow, and why a shop that grows faster than its capital can carry ends up in trouble while its accounts look healthy.
4. Three levers that free capital
Reduce the days customers take, by sending statements monthly, setting limits and working the ageing list. Reduce stock days, by clearing dead lines and ordering to movement rather than habit. And use supplier credit properly, taking the terms you have earned rather than paying early out of caution. Each of those releases cash without borrowing a rupee, and all three are within your control.
5. What to check every month
Three figures side by side: gross margin on your main lines, the change in total outstanding, and the change in stock value. Rising turnover with rising outstanding and rising stock is not growth, it is working capital leaving the building. Fifteen minutes with those three tells you more about the health of the shop than any profit figure.
6. Before you borrow
Borrowing to fund a genuine growth cycle is reasonable; borrowing to cover money stuck in a slow customer or dead stock is expensive. Before taking a loan, work out how much would be released by clearing your slow stock and tightening your slowest three accounts. Very often the money you need is already in the business and simply parked in the wrong place.