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CHAPTER 8 MASTERING YOUR MONEY

So, you have to also continually monitor your inventory to
make sure it is at an optimal level. You should have just enough
to meet demand from customers and, at the same time, not
too much that it ties up your cash.

3) Account Payables (AP)
While AR is the money that your customers owe you (an
asset), accounts payable (AP) is the money that you owe
your suppliers or other unpaid bills like phone bills,
unpaid tax, credit card bills etc… It is hence in the short-term
liability column.

While we want to collect our AR as fast as possible in order
to get cash in, we want to delay paying our AP as long as
possible in order to conserve our cash. This means that you
should aim to pay your bills on time but not sooner than you
need to.

When your company is new and you are short of cash, you
may even negotiate with your suppliers to give you longer
credit terms so that you can pay what you owe 60 or 90
days later.

4) Bank Loans
The final crucial component of the Balance Sheet that you
should focus on is the long-term debt that your company may
take up. These are usually in the form of bank loans.

Borrowing money is not necessarily a bad thing. In fact, when
you take on an appropriate level of debt, it can give you the
access funds to expand your business and boost your profits
without diluting your ownership in the company. Therefore,
taking on debt may allow you (and your shareholders) to
achieve a much higher rate of return on your investment.

254 SECRETS OF BUILDING MULTI-MILLION DOLLAR BUSINESSES