Every business requires working capital to operate and grow. Working capital is simply the liquid funds that a business uses in its daily operations. It is calculated by subtracting current liabilities from current assets. Current assets include cash, accounts receivable, inventory and short-term investments. Current liabilities include accounts payable, overdrafts, sales tax, and payroll expenses.
Why Businesses Need Working Capital
Having adequate working capital enables a business to:
Support daily operating costs.
Keep the business viable during periods of revenue shortfall.
Fund growth and expansion.
Seize unforeseen opportunities.
Deal with economic downturns, seasonal business swings, and unforeseen emergencies.
Meet short-term debt obligations.
Achieve peace of mind.
The lack of working capital impedes daily operations, restricts business growth, and discourages investors.
How to Get the Working Capital That You Need
A business can secure working capital from the following sources:
Traditional term bank or credit union loan.
Venture capital investors.
Friends and family funding.
Personal funding from savings and investments.
How Can a Business’s Working Capital Situation be Improved?
Improve working capital in these ways:
Speed up the payment collection process by negotiating earlier payment terms, providing incentives for early payments, penalizing late payments, and facilitating fast payment processes including online and credit card payments.
Check creditworthiness to qualify or weed out poor paying customers.
Request upfront deposits on major projects.
Use invoice financing.
Choose vendors who offer discounts.
Meet all debt obligations on time.
Delay expense payments so that they are paid “just in time” electronically.
Analyze all fixed and variable costs and find ways to reduce expenses to free-up working capital.
Examine and reduce all interest payments where possible.
Manage inventory levels so that unused floor stock is not sitting idle too long. Cut products and services that aren’t performing.
Seek Expert Financing Assistance
Contact Capital Crown Investments, based in Bloomington, MN for expert financing solutions. Or commercial finance experts can help you secure the capital you need to help your business thrive and grow.