Reducing Float For Fun and Profit

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If you're running a small business then you're probably broke all the time, especially if it's growing.

The cash float problem during growth is a mathematical rational reality that is easy to understand but
punches you in the gut from time to time.

What I mean by this is that if you are in a position, as most of us are, where you must pay to create something before you sell it and then the customer pays you 45 days later or so, then you have a period of time of at least 45
days, probably alot more, where you have paid for things but you aren't getting paid. This is called 'float'. If your
business is in a steady state, that float will be equal to 2 or 3 months of income. So if your company makes
$240k/year then the float is probably $40k to $60k.

Last updated: Apr 24, 2007




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