Comment by comprev
4 hours ago
I once worked for a company where they operated in the red for 95% of the year as they paid for project material costs up front. The CFO was quite open about how finances worked in our niche sector.
A client would pay an invoice and the balance would swing from -£20M to £0 and back down to -£15M for the next project within weeks! Revenue was in the £100Ms per annum.
As someone with almost zero business background it was a real eye opener how much we depended on a healthy relationship with the local bank manager. The business model clearly worked as they passed their 30th anniversary during my employment!
This is very common in a lot of industries especially physical goods and medicine.
You end up leverage for all the goods but the final settlement of payment happens much later, making them hard to survive in without a lot of capital and good relationships.
You can screwed very easily and understanding the model and not scaling faster than your capital allows is a skill in itself.
My friend failed at it while I was working with them.
I worked for similar company. And yes, it basically depended on the relationship with the local bank managers and suppliers. Unfortunately, it wasn't so successful.