Working capital makes it possible for a business to meet the debt obligations that it has in the short-term future. This might include operating expenses, inventory management, and other frequent recurring costs. It manages current assets against current liabilities so that they balance each other out. These working capital techniques will help your business be able to maintain its budget, even in difficult times.
1. Stagger Your Outlays.
Plan your expenses as much as you can so that they don’t all hit at the same time. This will help you to maintain an appropriate level of cash flow so that you aren’t having expenses outweigh your assets at a specific time each month. This will help your business respond better to emergency situations, handle a drop-off in incoming revenue more efficiently, yet still maintain the overall business presence to the community.
2. Seek Out A Line Of Credit.
Although debt is often considered a bad thing, there is such a thing as “good” debt. Work with your lenders to establish a line of credit that you can access in the lean revenue times to maintain your business. Then make it a priority to keep this line of credit as clear as possible when there are extra revenues present. This extra space will give many businesses the working capital they need when no other outlet seems to exist.
3. Plan Ahead For Major Expenses.
A one-time charge doesn’t have to be expensive if it has been something that was planned for some time. Work to match your larger cash outlays with a larger cash inflow so that the overall working capital continues to stay in balance.
4. Be Honest.
Financial institutions have a knack for getting to the truth, one way or another. Many business owners fear that when their working capital grows out of balance toward debt that a bank will drop them. Sometimes they will. This is true. Yet being dishonest about the financial state of a business is a certain method of having a bank drop a business. Never hide information and make the financial institution the first phone call when obligations might not be met.
5. Have An Active Collections Policy.
If there are customers that owe money, then it is important to avoid running a tab that continues on indefinitely. Collect from customers as soon as possible, even if purchase orders are used to pay for items. Outstanding money that should be part of a cash inflow can quickly set the working capital to be out of balance. Pursue the money that you are owed aggressively, but not rudely, and you’ll be able to say in balance.
6. Ask For Deposits.
If the ultimate goal is to protect the financial well-being of a business, then there are certain projects, contracts, or service options that should require a customer deposit. This might include equipment rental, specific labor being provided, or a long-term contract to provide materials or finished goods. Although a majority of customers are going to be honest, there will always be a few people that need their “teeth pulled” in order to pay up. Having deposits in place already limits the amount that may need to be collected in the future.
7. Always Look For Better Conditions.
Take the attitude that everything is negotiable. If you can secure long-term arrangements for your short-term debts, then consider taking them when it makes sense to keep your working capital in balance. Match up the long-term assets that you have with financing that is equal to their life cycle to receive the most benefits. Everything can become a little better every day, but only if you’re willing to look for options. Sometimes this means thinking outside the box, but it’s an effort that will always pay off.
8. Stay Public.
If you’re just starting up a business right now, then look for public financing options first. Your second option should be para-public financing. Only look to private financing options as a last resort. Private financing is usually more expensive, may cost you equity in your business, and you still may not reach all of your goals. Public financing tends to be of the more traditional variety so that you’ll just be paying interest back on money provided to your business.
These working capital techniques will help your business get off on the right food and keep your business presence stable and balanced. Implement them today and you may just find your future to be more financially secure.