Manage Your Cash Flow after You Buy a Website
Reprinted with permission of VotanWeb.com
There is no magic formula to determine the necessary working capital for a website. Sure, every accounting-textbook provides a definition of working capital, but how does this translate into the virtual world? The bottom line is, working capital is the cash that you need to continue operating your website when your current expenses exceed the cash flowing in from Paypal or the credit card companies.
Working capital is critical to the survival of your website. Sadly, for most website entrepreneurs, it tends to take a back burner until it begins to cripple their website. Website owners contact me weekly requesting a simple formula to determine working capital. Unfortunately, working-capital requirements are different for every website.
In an attempt to provide some help to website owners, I offer the following observations.
Websites with a fast inventory turnover don't have huge working-capital requirements because the cash flows in from Paypal or other sources 24/7. This type of website might require 10% to 15% of its annual sales as working capital, as a rule of thumb.
Websites that sell a large variety of items require a larger working-capital cushion. A website that must maintain a large inventory, for instance, incurs high costs upfront for materials, but has to have the means to keep the servers up and running until it receives payment form the customers. It might be reasonable for a website such as this to keep at least 25% of annual sales as working capital, speaking generally.
The better a website owner manages working capital, the less he needs to borrow and depend upon lenders.
There are many examples of websites that did not manage their working capital. I know of one website that was booming and the owner had money in the bank. But it wasn't enough. The owner had decided to dramatically expand the services he offered through his website. The development of the much larger website was substantial. Meanwhile, there was the weekly payroll to cover, the monthly rent for the servers and other expenses. Moreover, as is typical with any website expansion, it takes some time for customers to learn that you are offering additional services. This means that there is some delay between spending the money for the expansion and receiving the money from the increased sales activities.
On theory, the website was doing great.
Sales growth after 2000 were only 9%, which the average annual sale growth rates range from 10% to 30% in their industry. The lack of cash is explained by the current liquidity ratio
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
Analyzing Wal-Mart's annual report provides a positive outlook on Wal-Mart's financial health. Given the specific ratios and its comparison to other companies in the same industry, Wal-Mart is leading and more than likely continue its dominance. Though Wal-Mart did not lead in all numbers, its leadership and strong presence of the market cements the ongoing success. The review of the current ratio, quick ratio, inventory turnover ratio, debt ratio, net profit margin ratio, ROI, ROE, and P/E ratio all indicate an upbeat future for the company. The current ratio, which is defined as current assets divided by current liabilities, is a measure of how much liabilities a company has compared to its assets. Wal-Mart in the year of 2007 had a current ratio of .90, and as of January 2008 it had a current ratio of .81. The quick ratio, which is defined as current assets minus inventory divided by current liabilities, is a measure of a company's ability pay short term obligations. Wal-Mart in the year of 2007 had a quick ratio of .25, and as of January 2008 it had a ratio of .21. Both the current ratio and quick ratio are a measure of liquidity. Wal-Mart is not as liquid as its competitors such as Costco or Family Dollar Stores Inc. I believe the reason why Wal-Mart is not too liquid is because they are heavily investing their profits for expansion and growth. Management claims in their financial report that holding their liquid reserves in other currencies have helped Wal-Mart hedge against inflationary pressures of the US dollar. The next ratio to look at is the inventory ratio which is defined as the cost of sales divided by average inventory. In the year of 2007, Wal-Mart’s inventory ratio was 7.68, and as of January 2008 it was 7.96. Wal-Mart has a lot of sales therefore it doesn’t have too much a problem of holding too much inventory. Its competitors have similar ratios though they don’t have as much sales as Wal-Mart. Wal-Mart’s ability to sell at lower prices for same quality, gives them the edge against its competition. As of the year 2007, Wal-Mart had a debt ratio of .58, and as of January 2008, it had a debt ratio of .59. The debt ratio is calculated by dividing the total debt by its total assets. Wal-Mart has a lot more assets than it does debt so Wal-Mart is not overleveraged.
7.Gregory Wester, Stephen Franco. The Internet Shakeout 1996. Interactive Commerce Research Bulletin. the Yankee Group, Boston, MA. December 1995
Providing Full-Text Access to Eric Digest. n.p. 2003. The 'Secondary' of the 'Secondary' of the Web. The Web. The Web.
Owner Financing – This form of financing is only applicable we=hen you have a willing website owner. Usually the buyer will put down 40 to 60% (utilizing one of the methods above), and the owner will carry back a note for a duration of usually two to five years. Interest rates vary but they usually will be higher than banks or commercial resources. Sometime there will be “combo” financing with the owner taking back a partial note and the rest of the financing will come from the above resources.
Web. The Web. The Web. 9 May 2012. Lipking, Lawrence I, Stephen Greenblatt, and M. H. Abrams.
Johnson, T. (2011). S.P.I.D.E.R. A strategy for evaluating websites. Library Media Connection, 29(6), 58-59. Retrieved from http://web.b.ebscohost.com.proxy.devry.edu/ehost/pdfviewer/pdfviewer?sid=a1fe208a-6fb8-4e68-8191-7ef041e2d483%40sessionmgr111&vid=25&hid=113
RM: I agree that food safety is important. However, as I have stated before it is the market that should promote food safety not government regulations and legal liabilities. This will promote a free society and economy. The free market will ultimately protect the consumer’s interest out of the companies’ interest to sell their goods to a wider verity of people. According to McFadden and Stefanou (2016), there are several examples where the free market is working in favor of higher quality foods.
The shareholders of Event Planners Ltd; a business specialised in planning events such as birthdays, weddings, etc., are disturbed regarding the unprofitable state of the business and the cash flow problem the business faces in recent times. This report discusses the importance of cash and profit for business survival, outlines how the problem of cash flow arises, effects of cash flow problems for the business, and identifies methods for dealing with cash flow problems. It gathered and applied information from several sources such as academic articles, reports, and documents, assumed to be credible enough for the discussions.
Many organizations have maximized the use of cash on hand by effective cash management techniques and the use of short-term financing. This paper will discuss various cash management techniques and short-term financing methods used by organizations.
A Sustainable Agriculture Perspective on Food Safety. (2010, November 10). SustainableAgriculture.net. Retrieved November 16, 2013, from http://sustainableagriculture.net/wp-content/uploads/2008/08/NSAC_Sustainable-Food-Safety_FINAL1.pdf
So, a well-developed website and a good online presence can be a cost-effective way to grow your business by enabling your potential customers to reach your business easily.
Every year millions of people suffer from food poisoning due to uncontrolled application of agricultural chemicals, environmental contamination, use of illegal additives , microbiological hazards and others but as a result of increasing awareness of consumers and their demands to provide them with safe, wholesome and high quality food have force many food premises to carry out a broad assessment and re-organize their systems of food control in turn to improve efficiency , rationalization of human resources and harmonizing approaches.
Food safety is all the circumstances and actions necessary to ensure the safety of food at all levels. This refers to the practices and conditions that prevent contamination and food-borne illnessesFood safety is a necessity for everyone. Food borne illnesses is among the leading cause death in the United States. Last year, 325,000 Americans in the United Sates became ill from food poisoning and as many as 5,000 died (Center of Disease Control). Food safety is also an essential health function. Foods can be processed unsafely and contaminated in many ways. Contamination can occur during the packaging process, by storage or by cooking. Furthermore, food safety responsibilities rely on to many government agencies.