Operations
written by : William F Bryant Operations is an all encompassing term used to describe everything that your business does to make a profit. Generally, this is sub-divided into four broad categories, Finance & Accounting, Marketing, Supply Chain and Human Resources. The one thing I have always pointed out is that these categories all end up passing through Finance and an evaluation; after all, operations simplifies down to the timing and size of cash flows out vs. cash flows in. A business can look great in its Accounts Receivables and still go bankrupt due to lack of liquidity. What happened? Perhaps the receivables credit terms are too loose. Perhaps the capital management was not adjusted for the terms and necessary capital expenditures or materials purchases. Perhaps the firm wasn't taking full advantage of the terms offered on the Accounts Payable or perhaps it was a combination of all of these items. The timing and size of the cash flows was the issue. Understanding your cash flows is the foremost essential need for any business to continue to operate. You need cash flows to innovate, to plan project expansion, to maintain machinery and equipment, to supply operations, to pay labor and so on. Of course, we all know this is financed with capital and we need capital to operate a business, but did you also know that you can conduct a variety of analysis on operations to determine how much capital. How much cash should you hold for operations relative to what you need over a given period until you expect an inflow from your customers, your business cycle. How much raw material should you hold, how much inventory and what is the holding cost. Should you take on debt to finance a project or a purchase? Should you purchase or lease? How much debt optimizes your capital structure? What credit terms should you offer your customers? What terms do your suppliers offer you? How should you value a new product line? How should you price your products? All these questions pass through to finance and the understanding of your cash flows. The Broad Categories of Operations: |
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