For business development, you do need at least a minimum amount of working capital. The latter in accounting terms can be described as current assets minus current liabilities. Your business is likely to experience serious trouble if there is present negative operating capital. However, positive operating capital will not suffice. Rather, your objective should be the ratio of current liabilities to current assets of 1:2. Hitting this ratio will allow you to manage comfortably cash flow. There will also be offered leeway for coping with profitability troughs and peaks.
6 effective steps to avail Working Capital
Adopting these strategies will enable you to enhance available capital and cash in your business.
1. Review Overheads:
Identify where your overheads are bearing expenses. Do review periodically your suppliers. Find out affordable vendors. Negotiation can help derive better terms from existing suppliers. Do consider spending money unnecessarily on luxuries. Also will be essential to manage overheads at all times. However, it can be termed to be a wonderful strategy to enhance long-term operating capital.
2. Review Gross Margins:
If the need is to enhance capital for your business operations then do take into consideration underlying causes of issues as well as short-term fixes. In case sufficient profits are not made consistently, then review gross margins. Also, investigate the possibility of increasing the prices. Identify where it is possible to make savings on direct costs. A small increase noticed in profitability can actually help improve long-term capital. You may even check out at Crowdfunding.
3. Obtain financing:
You can derive greater flexibility in your cash flow by considering short-term online loans or financing. Short-term lending is considered a current liability. Short-term loans to enhance the availability of both operating capital and cash. Similar to raising more capital, borrowing to enhance operating capital will be an unwise decision. This is more so if you do it before you correct the underlying profitability issues.
4. Inject more capital:
Do consider investing in your company as it can help enhance capital and business development. Otherwise, you will have to seek external investment sources to obtain funds. Injection of cash against equity can help provide your business with much-needed liquid funds. But then, you need to be aware of the underlying cause resulting from not having operating capital. This is before trying to inject more funds into your business. Also, it will be beneficial to bring in investors from outside who will help dilute the equity share.
5. Invoice factoring:
This is one aspect that you can consider besides applying for Short-term online loans. It is considered to be an easy and quick way to avail more cash flow. In this case, you are actually selling off your invoice to an established factoring company. Hence, the received funds are highly unlikely to appear as a loan on your company’s balance sheet. Factoring sales invoices helps offer easy access to cash resulting from sales. This is almost immediate. With factoring, you can derive cash injection, thereby enabling cash flow management to be a straightforward process.
6. Managing Receivables and Invoicing:
Delays if made even for a small time to raise sales invoices are likely to reduce operating capital. Hence, make sure invoices are delivered to customers immediately upon delivery of services or products. Also, revisit collection procedures since late-paying customers are only likely to affect negatively your cash flow. Hence, apart from looking at Crowdfunding sources for funds, you should chase outstanding invoices once they get due. Do consider offering customers paying early with attractive incentives. It can be in the form of early settlement discounts.
Therefore, fix all underlying issues prior to considering borrowing Working Capital from various sources. You can enhance short-term cash flow by paying vendors late, reducing inventory, and factoring sales invoices.
