In life and business there are three basic tensions, Cost, Time, and Quality. Is it possible to achieve high quality, at low cost, in a short period of time? Probably not, so if you see an opportunity that promises this, it is probably hiding something.
To reduce cost usually requires a reduction in quality, or a longer timescale.
To reduce the timescale usually requires an increase in cost, or a reduction in quality.
To improve quality usually requires an increase in cost, or a longer timescale.
So what is the best way to balance these?
I would suggest that you start with identifying what you can’t change. For example, do you have a fixed budget, a timescale that can’t be changed, or an expected level of quality? And start there. Once you have a starting point, your options become clearer.
You can generally agree on two of the three factors, and have to accept the third. You want it high quality and now? You may have to pay for it… You want it now and cheap? You may need to accept low quality…
If you are challenged on why the cost is so high, the timescale too long, or the quality not up to standard, think about what you can do to one of the other two factors.
What is working capital? When accountants use it they are referring to “Net Current Assets” which are your companies short term assets less your short term liabilities.
To make this easy let’s assume that you have £1,000 of stock, you are owed £500 by your customers and you have £200 in the till. This means that your short term assets are £1,700, unfortunately at the same time you have £1,000 of bills to pay, which are described as your Short Term Liabilities.
Therefore your working capital, or your Net Current Assets, are £1,700 less £1,000 = £700.
Naturally, you would assume that the more working capital you have in your company the safer your company is, but this is not always true. If too much of that working capital is in stock, it is dead money; which comes alive when sold and then can be used to buy new stock.
Recently a large furniture retailer went into liquidation even though it had no major debts, because all its money was in furniture and no one was buying their furniture, this led to a major cash flow crisis and its eventual demise.
So you must look where your cash is and whether it is working for you. This is why before Christmas all the major retail chains were giving such big discounts, as it is no good having money in stock, if you don’t have cash to pay your staff and your regular bills.
The message is, if your stock isn’t selling, sell it at any price and use that money to buy stock that will sell.
Spent a great afternoon today on a panel presenting to a group of aspiring film makers. I am always inspired by those who have creativity running through their veins. Something about art being the object of their day’s work, not the pursuit of profit.
My input was to help improve the participant’s business skills. Also on the panel were four (yes, four) lawyers.
Art is good, sustainable art is better; be led by your work, not by the corporate structure.