Every large company has a Purchase Department through which all orders it places must pass. If managed well, this is a good thing for the large company. It has a bunch of people who, in theory, are always on the lookout for efficiencies in purchases - leveraging purchases across departments, finding products or services of lower cost and ensuring that someone in the Materials Dept is not favoring his brother-in-law against a lower-cost supplier. For the vendor to the large company, this translates to the grim fact that the purchase guy exists for the sole purpose of driving your quote down. He will point out deficiencies in your offering. He will compare you against larger vendors who have efficiencies of scale. He will inform you of competing quotes that are much lower than yours. He will hint at a continuous stream of orders in the future if you manage to sell this one at a discount. And so on. I am not trying to say that the Purchase Guy is Evil. On the contrary, I know of instances...

It's four and a half years now since I started an enterprise with a close friend and classmate, and it has been one rollercoaster ride all the while! I've been thinking a lot lately about what I've learnt from the experience, and decided to write down my thoughts in a series of intermittent blogs. Today's topic - The importance of working capital I'm writing from the perspective of running an unfunded services business in India (the laws and practices might be different in other countries). Requirement of working capital is obvious in a product-development environment but more insidious, and harder to justify, for us services guys. Let me build up the perfect storm pointwise: 1. Accrual accounting: I had no idea what this term meant before I started out. It means simply that the incomes and expenses for a time period are calculated based on the invoices issued during that period, and not the actual cash flows. So, in a year if I have done work and invoiced projects ...