Working Capital and Inventory
Working capital is the cash tied up in running your business day to day — and inventory is usually the biggest piece of it, which is why a profitable business can still run short of cash.
Direct answer
Working capital is the cash tied up in running your business day to day — and inventory is usually the biggest piece of it. Every cedi spent on stock that hasn't sold yet is a cedi that isn't sitting in your bank account or MoMo wallet, even if the business is genuinely profitable.
Why a profitable business can still be cash-poor
Profit is calculated the moment a sale happens. Cash arrives at a different moment — when the customer actually pays, and after you've already spent cash buying the stock in the first place. A shop can have a healthy net profit margin on paper and still struggle to pay rent this week, because the cash from this month's profit is currently sitting on the shelf as next month's stock, or in a customer's pocket as unpaid credit.
The slower that last step happens, the longer cash stays tied up — and slow-moving or dead stock is exactly what stretches that gap.
Diagnostic: "I have stock but no cash"
This is genuinely one of a few different problems, not automatically an inventory problem. Work through these in order:
Questions
- How much is currently tied up in stock value (see stock valuation)?
- How quickly is that stock moving — what's your stock turnover?
- How much do customers currently owe you?
- How often are Mobile Money payments and sales actually being reconciled?
- Has how much you're buying increased recently, relative to how much you're selling?
Possible causes
| If this is true | The likely cause |
|---|---|
| Stock value is high and turnover is low | Cash tied up in excess or slow-moving stock |
| A meaningful share of that stock hasn't sold in a long time | Dead stock specifically, not just slow stock generally |
| Customer debt is high relative to revenue | Cash tied up in customer credit, not stock |
| Recent purchases have outpaced recent sales | Purchasing behavior getting ahead of actual demand |
| None of the above stand out clearly | Possibly a reconciliation or timing gap worth checking directly |
Action
The right next step depends on which row above matches: reduce reorder quantities and let turnover catch up, address dead stock directly (see Dead Stock), chase outstanding customer debt, or slow down purchasing until sales catch up. There isn't one universal fix, because there isn't one universal cause.