Irrespective of the fact whether it is a small business or a large scale business; money, plays the dominant role by as it has various facets like capital, working capital, investments, loans, debts etc. Among them, working capital is one of the crucial variables that has an impact on both, the short term functioning and as well as long term functioning of the business. In financial terms, current assets that include receivable accounts and inventor, minus, current liabilities, which includes payable accounts; refers to working capital.
If the current liabilities exceed the current assets; it would be a red sign of being bankrupt. Short term bills, loans, credit card transactions, debts, short term investments are the elementary components of the working capital that always has an influence on the stability of the business. Why you should be more concerned about the working capital, is a crucial question, as the long term assets are affected to a great extent by the same. To ensure the efficacy of the financial management forecasting of your business, you should know how to improve the working capital and maintain it at an adequate ratio.
By following the below mentioned tips, it can be ensured that your working capital improvement process is more progressive.
Profound invoice management: In-depth analyzes of ledgers and accounts would reflect any type of financial problems, since these records can be considered as the skeleton of a business. First, identify whether you are having a positive working capital, which means being able to pay liabilities; or a negative working capital that implies being unable to pay the liabilities. If you have a negative working capital, a rapid recovery program is needed; whereas a positive working capital reflects a well planned working capital management system. Short term business loan alternatives such as Merchant cash advance are more effective in managing the working capital. You can build up connections with local banks concerned with interest rates, and consult credit card companies to improve the working capital, while updating and regulating the invoice correspondingly.
Management of Cash Flow Forecasting: The effectual cash flow decides the durability and the safeguarding of the business. Therefore, it is advisable to be concerned with the inflation and the deflation, which is constantly oscillating in order to secure the future monetary establishment of your business.
Stringent Credit Period Policy: Sometimes you may plan to promote the turn over by offering bonus, discounts, leasing for customers in an attractive manner. You should avoid excuses for the delay of the payments, collect cash on time and make awareness of customers about payment rules and limitations.
Effective risk management: The market functioning is always not predictable, and the impulsive risks may severely affect your business. Therefore, it is advisable to design optional processes of risk management, using the analyzed results of market researches.
Effective communication: In order to establish better interaction among the functioning of all the determinative variables of the business, you should maintain effective communication with banks, customer’s services, executives, managers, suppliers and distributors, correspondingly.
Besides, the above mentioned ways, if you plan to make manageable investments coupled with effective inventory management system and dispute management system; you will be able to uphold the working capital of your business at an optimal level, thereby growing consistently.
(Photo courtesy: Inmagine)