Working Capital Management
An economic activity adding value to goods or services and making these available to customers to satisfy their needs can be termed a business activity. An organisation or establishment carrying on with a business is termed a business organisation or establishment. There are defined structures for such business organisations. Here we are particularly concerned with those coming under Sole Traders, Partnership establishments, Private and Public Companies.
Business activities entail investments on assets, besides deployment of funds to meet day to day requirements to run the business. Costs of operations in a business activity include several elements. The important among these are costs of inputs, processing cost, and cost of labour, cost of utilities, cost of holding inventories, costs of maintenance of infrastructure and costs of finance deployed in the business. The entire funds applied in a business go into two types of cost blocks.
These are “Fixed costs” and “Working capital. ” In this paper, the sensitivities of working capital and its management in an organisation structured as Sole Trader, is compared with those in an organisation structured as a Company. In doing so, this study has gone into the basics of organisational structure, sourcing and application of funds in the two types of organisations, and comparative risks in managing funds, particularly working capital. Conclusions are drawn on the basis of findings.
Research Findings Planning the business organisation structure Identification of the sources of finance for establishing and carrying on with a business is an integral part of the business planning process. The planning activity also includes decision making with regard to the structure of ownership or establishment, of the chosen business organisation. When a business is established, it also requires finances to keep it going. The options to source finances depend on the type of organisational set up.
Common types of business establishments fall under the following categories: • Sole Trader • Partnership • Limited Liability Company Any business proposal needs money for initial establishment, for running it on a day to day basis, and for its continued growth. Money is needed for long term applications as well as for short term applications. The choice of sources for finance depends on whether the application of funds is for short term or long term requirements. Structural differences among the types of establishments