Working Capital Management - II

22 Jun 2018

Thank you so much for your positive feedback on the blog last week. I will incorporate the experiences and learnings shared with me in this series.

Let's now discuss what happens when child starts growing. Parents enjoy the progress of the child and the promoters the acceptance of their own product / services. The demands increase. The planning horizon expands.

The parents (and promoters) typically need to shift gears on personal and professional front. In personal life, parents balance love for their babies with the requisite effort to inculcate good values in the children. This needs to be a well-balanced act to help children mature into responsible citizen. Similarly, organizations sow the seeds of expected corporate behaviour at this stage.

The parents anticipate the increasing expenses and start planning. The working capital requirement focus now changes to:

  • Meeting the growing household needs
  • Planning for development of the child
  • Investing for future

The net liabilities now include

  1. Development Expenses
  2. Investments for future
  3. Healthcare for the child and family
  4. Monthly Expenses like Rent / Instalments, Food, Basic Household Items, Travel, etc.

The Net Assets now need to extend beyond the Monthly Salaries. Parents look for different ways – Spouse starts working / new job with better salary (and prospects) / new business (side business is the popular Indian term) / Investments with better (or faster) returns. A typical Indian family will now initiate a Recurring Deposit / Fixed Deposit / Gold Accumulation / Monthly investment Plan.   

There is considerable focus on creating long term capital intensive assets by availing long-term credit like home loan or car loan. Something we may term as infrastructure for future developments.

I believe at this stage; the things start getting complex.

  1. What is the right kind of development? And at what Cost?
  2. What is the infrastructure needed?
  3. What is the quantum of investment in future?
  4. Short-term Vs Long-Term
  5. Roles and Responsibilities
  6. Hire or Develop?

Parents learn from elders, discuss among peers or seek professional help to pass through this phase. What do the entrepreneurs do? How many have a Mentor? How many open-up about their challenges with their peers or even with mentors? Do the companies hire competent resources to manage specific tasks including Working Capital Management?

Let's look at the challenges faced by enterprises on growth stage from Working Capital Perspective:

  • Cash Management: Balancing the cash inflow and expenses is a critical, almost an artistic capability. As growth starts, cash inflow improves, and the corresponding expenses increase. At times, enterprises plan expenses (Resources / Services / Celebrations) based on expected cash flow and the delays in actual receipt leads to excess borrowings, thus reducing profitability. There is a tendency to delay payment to vendors / employees / Banks, which has a snowballing impact.  

How would an Indian family manage these delays? Remember the Fixed Deposits / Recurring Deposits / “Kitty”? These acted as cushions to manage similar situations. Families saved a part of additional income to be prepared for some unforeseen challenges.

The growing companies need to create a contingency fund from increasing cash flow to absorb these delays and fund the growth plan.

  • Expansion: A family will plan the growth. There would be some age gap between children. Allowing one to get undivided attention of parents and the necessary care including vaccinations. Thus, offering the mother sufficient time to recover and be prepared for second child. A family plans and arranges the necessary resources for a comfortable birth and care of the second child. Parents always find managing the second childbirth easier.
  • Enterprises also need to invest time and resources to nurture their first offering. Seek certifications and validations. Build Resistance. Gain Experience.
  • Have you seen companies trying to develop too many products simultaneously?  Mixing priorities? Creating a fatal turbulence?
  • Enterprises need to plan the growth. The resources / funds required to facilitate and sustain the growth need to be accumulated internally. 
  • Conflict between Long-term Vs Short term:  When you are riding a tide, you should sail as long as possible, they say. “within the available means” are the words missing. Thus, while growing, there is a tendency to channelize all possible resources towards “Acceleration”. All the incoming funds are expensed out to meet the immediate / short term needs, without carving out some amount to manage contingencies / Long-term Goals.

A family manages this challenge by setting-up systematic investments to achieve the Long-term Goals. These investments become part of the short-term plan or net liabilities.

An entrepreneur may use similar approach to set-up the goals and carve out a part of income to meet the long-term goals. Once the funds for Long-term Goals are allocated, the increasing balance funds may be used to support the Short-term Acceleration Plans.   


  • External Investments: At times, companies tend to bridge the Working Capital Gap by seeking funds by means of investments against stakes. While this meets short term demands, what happens in longer run?

Families seek loans for creating long term assets required to meet aspirational requirements like Home Loan or Car Loan. They enable families to move to the next level socially. Personal Loans or loans for personal satisfaction are highly discouraged.

Enterprises also need to seek investments only when they offer the strategic advantage in addition to the funds. 

Trust you have experienced / managed / overcome similar situations. Request you to share your invaluable experiences / insights with me at

We will assess the Maturity Phase next week.