The Power of "Float" in Growing a Business
One of the great tools of business owners is what is called "float." When you think of an insurance company for instance, when they receive premiums from customers, they are able to take that money, invest and multiply it because the majority of people don't make claims.
Retail has its own version of that with vendors. When you consider that most vendors offer to be paid in 30 days, and sometimes longer, it generates "float" for the business.
Float can only be generated when merchandise is turned over quickly, something that Wal-Mart (WMT) has never had problems doing from the beginning.
What happened with Walton was that he'd order his merchandise and many times turn it over in a three-day period. So the rest of the month he had all that money to work with. He had to eventually pay the vendors of course, but that was after using their money for a month at no extra cost.
This, along with some bank financing, was the way that Walton grew Wal-Mart
Float isn't anything new, but the power that it can give a business is extraordinary. No matter what business we're in, we need to look at float and ways to use it to increase our profits and growth.
All we need to do is ask ourselves what it is we pay for to sell, that we can turn over quickly, and then use the money again before the payment is due. The answer to that question, no matter what industry we're in, is what "float" is. Just don't get it confused with something that the business consumes.
The power of float is that it offers us way to invest in other products or grow the business with money that is basically free of cost, other than possibly the original terms to buy the products in the first place. Don't underestimate the power that it gives a business.
Other Walton Sources:
The Most Underrated CEO Ever The legendary Sam Walton
Sam Walton: The Power of Persistence
Sam Walton Business Quotes for Ya
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