It will recommend areas of improvement to endure success. Lastly, this paper revised conclusion on the overall capital budgeting analysis Of George’s Trains. Key words: working capital, investing conservatively, pitfalls Working Capital Practices of George’s Trains George’s of George’s Trains started his business as a conservative investor. He understood and applied this practice properly; as a low-risk, low-return strategy. As an investor, George understood the two definitions by which to invest conservatively.
First, a conservative investment is one that carries the greatest likelihood of preserving the purchasing power of one’s capital with the least amount of risk. Second, George knew what a conservative investment was, and then followed the course of action needed to properly determine whether particular investments are indeed conservative investments (Gad, 2014). George did not have the background as an entrepreneur so he needed to have a safety factor to be able to weather market storms better than his competitors is.
With this, he needs to have a low cost of production (Gad, 2014). When a bad year hits George’s Trains, the chance of still churning out a profit or reporting a smaller net loss is achievable. A company that cannot compete by staying abreast of market hanged and trends is doomed in the end. George realized this and moved to expanding his product line outside of a one-man band – trains! Finally, management should possess financial skill (Gad, 2014). George relied on his bank and trending past years as well as utilizing the books from the previous owner.
In doing this, George is able to maximize his return on investment capital, and other important components of business success (Gad, 2014). Beware Of Potential Pitfalls George realizes that model trains are seasonal. With that in mind, George orders inventory based on demand and utilizes past reports on trends. When business is slow, he decreases his inventory so he is not tying up his capital. When he sells an item, he makes sure that the replacement is ordered before the shelf is empty. This ensure maximum cash flow in his business.
Managing working capital is the operational side of budgeting. When businesses put a budget together, they anticipate future cash flow and the timing of that cash flow. This planning is critical, especially in small businesses and practices (Kelly, 2014). Another pitfall that George realized was “The people Factor” (Moody, 2014). He realized that in order to be successful he added to cultivate his loyal customer’s that used to come to his home business, as well as building a broader base.
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