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Make Working Capital Work For You


Jeffrey Bumbales

No matter what kind of business you own, one thing is always true: If you don’t have a strong cash flow, you’re going to run into a lot of trouble. Without working capital, the money necessary to fund short-term needs and operations, businesses cannot continue to run.

Growing companies often find themselves short on cash as they expand day-to-day operations. It is critical that companies properly manage their cash flows and expenses to ensure there is enough working capital to maintain business continuity.

So how do we acquire more working capital?

Working capital can come from a number of sources: daily income, business lines of credit, and even working capital loans. Whatever the source, working capital can quickly become tied up in daily operations, inventory expenses, outstanding bills, and other day-to-day financial needs.

If these situations are creating challenges for your business finances and you need to find a better way to manage your working capital, or if you’re considering taking out a working capital loan and want to know how best to use the available money, here are a few ways to make your working capital work harder:

Increase Available Working Capital by Improving Stock Management.

Working capital is most typically linked with stock and inventory. Slow-selling stock and outstanding customer invoices can impact your company’s working capital by reducing the amount of available cash you have on-hand. With money idling in unsold inventory, growth activities often halt – making it difficult to spend when and where you need it.

This poses a difficult situation. In order to grow, companies need enough inventory to meet demand. But they also need enough working capital to reach new customers while continuing daily operations.

Securing extra working capital can help you manage your stock more effectively, or give you additional cash flows to help you navigate through your inventory issues until you’re able to unload your slower-moving items.

Prevent Overtrading to Avoid Unwanted Surprises.

“Overtrading” is a term used to describe companies that engage in more business than can be supported by the market, funding, or resources available. Often times, companies make purchases of new equipment or inventory without the sales and profit needed to pay them off, or they promise customers more than they can deliver financially.

Unfortunately, this can create a ripple effect that impacts nearly every financial requirement the business has. As late payments and invoices begin to stack up, companies tend to find themselves in a position with enormous accounts payable or receivable, and insufficient working capital to finance daily activities. While engaging in more business is typically good for growth, overtrading can run a company into the ground by freezing core activities.

By securing additional working capital through loans, or making better use of your current available cash flow, companies can ensure that money is available for any outstanding business transactions and prevent the negative effects of overtrading.

Maintain Ownership of your Company for Long-Term Success

A common solution for small business owners facing a cash shortage is to seek outside investment in return for some ownership of the company. However, this can prove to have a bigger hindrance on business operations later on.

When you give up a portion of your company, you’re also surrendering some of your decision-making power. Private investors typically want a certain degree of control over their investment, and this often conflicts with the existing growth strategy and trajectory of the company.

By securing a working capital loan, or managing your current capital flow, you can keep your business self-sufficient to avoid outside influence and spend the money where you see fit.

Free Up Capital by Solving Short-Term Financing Problems

While working capital is good for solving issues like inventory management, it is ideal for meeting immediate, short-term financing needs. With limited working capital, unexpected issues like sudden building repairs can freeze business operations.

By injecting money into your business when it’s needed most, working capital can help you keep up with changing marketplace demands or any setbacks you encounter along the way. Instead of compromising daily operations to mitigate the unexpected issues, companies can easily navigate the adversity and continue to grow their business.

Proper management of available working capital can help your company stay ahead of financing needs, and keep your business growing. For that reason, working capital loans are often the best decision for businesses who just need a little boost to continue their momentum. Credibly offers various types of small business loans and working capital loans to tailor a lending solution to your business and financial needs.