Is your business “93.97/USD” Ready?
The attached headline from The Economic Times shows a harsh reality: Rupee at a record low, Oil at $155, and gold losing its luster.
In a global economy where “stability” is becoming a thing of the past, the question no more — whether crisis will hit?? , but when.
The Golden Rule to my mind: Don’t Suffer, Create a Buffer.
We often build personal emergency funds, yet many businesses operate on a “hand-to-mouth” cash flow. When volatility peaks, those without a buffer are forced into panic decisions.
Easy Formula which I use:
Don’t just guess your safety net. Calculate it. Net Working Capital (NWC) requirement: Current Asset (Debtors + Stock + Cash/Bank balance) less Current liabilities (Creditors & short term debt)
The Goal: Multiply your monthly NWC by 6 to 12 months. Add your fixed overheads (Rent, Salaries, EMIs). This is your “War Chest” in difficult times.
Why this “Buffer” is your best bet:
* No Knee-Jerk Reactions: You won’t have to lower prices or fire employee just to stay afloat for a month.
* Absorption Power: If your clients delay payments by 60 days due to a market condition, your operations don’t stop.
* Buying Opportunity: When others are panic-selling, a cash-rich business can acquire assets or inventory at a discount.
3 Ways to Build Your Buffer Safely:
The “Unused” OD Limit: Negotiate an additional Overdraft/CC limit with your bank now. If you don’t withdraw it, you don’t pay interest. It’s a “just-in-case” insurance policy.
* Lean Inventory: Don’t let your cash rot in a warehouse. Liquidate slow-moving stock to increase your cash-on-hand.
* The Credit Squeeze: Shorten your collection cycle from debtors and try to extend your credit window with suppliers.
Does your current working capital allow you to survive a 6-month supply chain disruption? If not, let’s talk about building your buffer.. also do share any other solutions which I missed.