Shreckengost, Raymond C. with Ray Thompson, "The Financial Dynamics of Small Business Growth and Survival", 1985
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The failure rate for small businesses is extremely high. Inadequate financial control is a major contributory factor. The pattern of interactions between a fluctuating sales rate and the levels of receivables, payables, inventory and cash is highly complex. A model is described which simulates the experience of a small business in managing current assets and liabilities. It demonstrates the way in which liquidity changes over the operating cycle, how cash flow, and profit are dynamically different and how the firm's need for financing is constantly varying. System Dynamics is a useful tool for understanding and improving the financial management of small firms.