Rolling Capital

Recently my friend started a business of selling hardware to government offices. I know he is good in sales, he has a proven track record while we were working together at a local company.

However, being good in sales does not mean being a good entrepreneur. A few months after he started his business he ran into the problem of not enough rolling capital to buy from supplier.

You see, this is how he does business; he takes "Request For Quotation" from clients, then source for the products from a pool of suppliers. He earmarked the cheapest suppliers and mark up the price for some percentages, and pass the "Quotation" back to the clients. The clients then gives him a "Purchase Order" where he will then contact the earmarked suppliers to purchase said item. He will then pay for and receive the product, deliver it to his client, and receive payment, and voila! a sale.

The problem my friend is having now is that although he received a "Purchase Order", he does not have sufficient cash or credit to buy the product from supplier. If he wait too long the client will get frustrated and cancel the purchase, which had happened several times. This problem is causing him many sleepless nights currently.

So, if you are just starting up a shop, make sure that you have sufficient rolling capital to run your business. Instead of spending it all on rent, furniture, and buying office equipment, keep at least enough money for you to run your business at least for half a year.