Simply, working capital is the ability of your short-term assets to cover your short-term debts. Good working capital management will maintain the balance between your growth, profitability and liquidity.
To calculate your working capital cashflow, subtract your business’s debt from its asset worth. This sum should be a positive number. To find your working capital ratio, divide your current assets by your current liabilities. A good ratio guide to go by is two-one assets over debts.
Office expenses, equipment purchase, staff wages, and invoice payments all fall within your business’s working capital. If you are not able to cover these liabilities, business growth is going to be restricted. However, there are ways to increase your working capital to allow for business growth.
Generate more sales
A higher revenue is easier said than done but consider the services you are offering. Is there room for a price increase or even a new service?
Rework your current debt
Look at where your debt is currently sitting. Can you refinance or consolidate loans to lower your debt servicing?
Reduce inventory levels
Take a good look at your inventory and weigh up whether you need it all. Quick turnover equals profit – could that space be filled with something that won’t sit there for 12 months?
Part with long-term, unprofitable assets
If a piece of equipment isn’t earning its keep, this might be the perfect time to sell it. Increasing your working capital means profits outweighing costs. If your asset isn’t profitable, get rid of it.
Negotiate with your suppliers
Many suppliers will reward your regular business with a discount on stock prices. If you’re a frequent customer that is easy to deal with, pays on time and refers other custom to your suppliers, why not ask them if they can give you a better price?
Finance solutions for working capital
When it comes to growing your business, finding a finance solution that’s tailored to your business will be the best decision you can make. By utilising a finance broker’s access to multiple lenders, you can secure the best working capital finance package, offering business term loans, debtor finance, equity access, insurance premium funding and overdrafts.
CrediFlex has brokers nationwide, specialising in working finance. Find your local broker and get on with growing your business how you want to.
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