CHAPTER 21

Last Word—Be Wary of Overtrading

As a precursor remark to this final chapter, be wary that chasing profits can lead to overtrading, which can have similar negative results as undertrading.

How Is the Term Overtrading Defined?

Overtrading is simply the rapid rise in sales without enough cash flow and capital to fund the increased trading. This is risky and a problem because you may run out of working capital and consequently place your company at risk of sequestration. Remember that banks use ratios to measure your risk exposure, and these have been reviewed in this book.

So, how do you know if you are overtrading, and what can you do about it?

As a starting point, overtrading occurs when any of the following occurs:

There is a rapid ...

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