Working capital is the available cash on hand for the day-to-day operations of your businesses. And this can be affected by numerous factors, which include internal mechanisms and external issues. It doesn’t matter how much you sale if you are not good at collecting and managing your cash flow and working capital. Cash is king!
Another factor that will have a huge impact on your working capital is the unwarranted focus on the task of coming up with excellent quarterly sales results. Oftentimes, this has a negative effect on your working capital performance. When your business operations marked seasonality and the requirements of your working capital vary from one quarter to another, there will definitely be a great chance for your working capital performance to be affected negatively.
Indeed, proper capital management will ensure that you maintain enough liquid resources for your everyday business operations. Proper manage will involve attempting to achieve a balance between reducing insolvency risks and maximizing your asset’s return.
How To Manage Your Working Capital
Create proper cash flow projecting – This process must consider the market cycles, the loss of a valued client, the actions done by your competitors, and the impact of all unanticipated events to your business’ overall performance. Moreover, you must also consider the unexpected demands of your capital.
Craft contingency plans for unexpected events – Regardless of how profitable your business is, you must always ensure that you are well-prepared in case unexpected events arises. You need to hone your skills in efficiently managing any uncertainty by formulating risk management procedures. Remember though to establish these procedures based on the objective and realistic view of your working capital requirements. As we are experiencing now with COVID-19, as never before we are seeing the importance of having a rainy day fund and planning for “What Ifs” that sometimes are simply out of our control.
Use your working capital in a corporate wide basis – This is regarded as among the most effective capital management strategies because this will help make sure that your business’ cash on hand are utilized in various functions. This can be performed by using such cash from one place to another. Making sure that different aspects are in place is a great way of efficiently implementing this tip. These will include efficient banking channels, excellent linkages between production and billing, effective internal systems, information access, and good treasury practices.
Manage disputes properly – This can free up cash that have been locked in due to certain disputes to clients. Customer service can also be improved with efficient dispute management procedures. Most importantly, your business efficiency is expected to improve since you can begin to minimize operating costs via this tip.
These tips will definitely help you in measuring the operational and financial efficiency of your business effectively.