7 Tips to Help You Grow the Working Capital in Your Business

Problems with managing cash flow usually occur with seasonal businesses. Avoiding bankruptcy is the number one goal of any business. Not being successful in cash-flow managing can lead to a possible bankruptcy. Low working capital can cause problems even to more profitable businesses. Determining the cash you can operate with is vital for a successful business.

Your flexibility and credibility with financial institutions depend on the way you manage your cash-flow. Relationship with customers and suppliers relies on it too. Working capital keeps you in the business and makes new opportunities easier to seize. With these practical tips, your working capital is bound to grow.

Determine what the working capital is

There is no better place to start from than the beginning. The first thing you should do is calculate what the current ratio for the company is. You can determine the current ratio for the company when you divide the current assets by current liabilities. The current ratio greater than one means that there are enough short-term assets to pay short-term liabilities. On the other hand, if the current ratio means you’re having trouble paying bills since your liabilities are bigger than your assets.

Determine how the working capital is affected

To determine how the working capital is affected start from reviewing accounts receivables, accounts payable, and inventory. This way, you’ll be determining the company’s operating cycle. Pieces of information like how much does it take on average to collect a receivable from a customer are helpful for this. Pay attention also to the number of days it takes the company to pay the vendor. Positive cash flow occurs when the accounts receivable days plus the inventory days are less than the accounts payable days.

A close up of calendar

Keep a calendar of bills and scheduled payments

To keep track of your expenses and to plan them properly, keep a calendar of bills and scheduled payments. This will help you not fall behind on the bills off-season. Another benefit of this is that it’ll be easier for you to gear up and prepare for the season of large income. Don’t forget to record all business transactions. Accounting software can be very useful for this. You should regularly review your business bank statements to avoid unnecessary fees. Preparing the schedule in advance significantly can improve the growth of working capital.

Look for additional revenue streams

Since the profit isn’t the same throughout the whole year for seasonal businesses, there should always be a plan for the slower months. Those slower months can be used for planning. You can profit much more during the busy season if you consider other revenue opportunities. Of course, your core product and services should be priorities, but that doesn’t mean that other revenues are impossible. Check whether the new revenue can have any negative impact on your business. If it fits in your core operations and visions and isn’t going to have serious consequences, then you’ve found a way to grow your working capital.

A loans concept

Secure a loan in advance

Securing a loan in advance will be beneficial for off-season cash-flow. Loans or lines of credit can help you grow your working capital. Don’t wait for the last minute, when it’s already late. Instead, obtain a business loan or line of credit several months before you might need it. Develop the business plan and met with your banker. Negotiate for payments only through the slow months or full monthly payments during the season. Professionals like Classic Funding Group offer payments with reasonable terms. Affordable monthly payments will help you hire staff and buy equipment.

Budget and forecast according to your possibilities

Every kind of business implies the existence of short-term and long-term needs. Sometimes there are situations when you’ll need additional cash. On the other hand, short term needs can grow into long term needs. Make sure that your cash availability is on top of the game over the year. This means that you’ll have to budget and forecast cash-flow.

An informal staff meeting

Try to reduce overall costs. This way, even if the sales remain the same, you’ll have a bigger income. Another thing you can do is turn inventory faster. If the inventory remains unsold for a longer period, you need more cash investment to keep it there. When you push inventory, you help the operating cycle.

Staff appropriately

High and low seasons won’t require the same staff. Make sure that your staff is appropriate for the time of the business year. Overstaffing during the off-seasons means lots of unnecessary expenses that affect the business in the wrong way. Understaffing during the high seasons is also bad but in another way. With insufficient staff, you will be losing lots of sales and money. Try to always pay attention to what the business needs, to keep it going. When hiring, think twice before you offer certain benefits. Your goal should be to have satisfied employees, but not for the price of bankrupt.

Conclusion

The importance of working capital is undeniable. Your whole business depends on it. If you have the chance to improve your professional life, you should take it. These tips are especially important if you’re a seasonal business owner. Then, cash-flow management is even more difficult. Start by determining what your current ratio is and where you want to get. This will help you make plans for the future of the company and create opportunities for developing.

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