The Importance of Working Capital Management
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We created a Business for the purpose of creating a Passive Income .
Passive Income defines as;?Income that flows into the bank account Automatically with little or no effort realized by the creation of an Asset Producing Vehicle?( A Business) .
Passive being Additional inflows of capital and resources in the form of economic benefits. In order for Passive Income to work our Net Working Capital has to be positive.
Our Net Current Assets(NCA) have to be greater than our Net Current Liabilities (NCL).?NCA being the current running cash and cash equivalents+ paying accounts receivable clients (debtors)+ fresh or long term stock+investment income streams > NCL?being the current short term loans+payable installments on long term loans + accounts payable (creditors) +expenses + disposable stock.etc?
If the value is greater we have a Positive Working Capital, if the value is negative, we have a Negative Working Capital. It's safe to say if we have a positive working capital we can continue to run.?
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When the opposite kicks in , this is where our Active Income comes into play . Income derived by being active or being mentally and manually challenged to do tasks and activities for the benefit of another organization .
Long term goals would be to get to Active Entrepreneurship.?Active when it's sustaining the current state of your lifestyle when you're actively participating in the business.?
The mostly desired state of entrepreneurship is Passive . We may argue and say that one starts off as Active then becomes Passive or that one starts of Passive then becomes Active . Either way the desired outcome would be Income.??
Whether the entity runs Manually (Active) or Automatically (Passive) . If Passion comes into play it's,?Active Entrepreneurship?for example an Artist releasing albums , going on tours , doing talks and acting in movies .?
Can we then say if the business model is Passive , there's no passion for the business ????In conclusion , there's a million ways to kill cat . For example a long term trader... The best solution for the beginning of entrepreneurship is a Hybrid.
Hybrid entrepreneurship in my opinion is the best form of entrepreneurship because it gives greater cash flow and diversification. It also gives greater wealth abundance. Ability to grow and explore other business avenues.