How long it takes to make those products is known as the business’s operating cycle—the longer the cycle, the greater the need for cash on hand. Operating cycle also refers to the situation I described earlier: the entrepreneur who makes a sale but has to wait several weeks to be paid. That’s a gap that needs to be filled. Then there’s the sort of business in question. For example, if you have a business that’s cyclical in nature—you have certain busy seasons or have products geared to particular holidays—you’re going to need plenty of working capital. That’s money that will not only see you
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