Boost Working Capital Effectively for Every Small Business

Working-Capital-for business

Working Capital is the life breath for any business. While adequate working capital enables a company to propel its growth, a shortage of working resources can offer the toughest challenge to the business process. Hence, entrepreneurs should always handle and manage their working capital in a wise and considerate manner.

Evaluate the right amount you need to support the business process 

Most importantly, it would help if you made a realistic evaluation of the actual working capital you need. It requires you to adopt an appropriate working capital formula for your business. If you are wondering how to calculate working capital, you need to consider the specific business aspects of your business as there is no one size fits all approach in this regard.

It is very important to create a growing pool of working capital

As the scale of operation enhances, you will require more and more working capital to support the growth. Every business aspires to expand its operation scale. However, if businesses don’t have adequate working resources, the growing business process ought to suffer. Hence, it would be best if you created a pool for growing working capital. The best thing to do is to allocate a part of your revenues in this regard. Decide a percentage of the business revenues that you will reserve for the working capital to grow. It is more important that you stick to this plan and save a certain portion of the revenues, no matter what sacrifice you need to make to accomplish this plan.

Optimize the term for accounts receivable 

If you have to save a portion of your revenues as the working capital fund, it is curial that you retain the right flow of cash. You cannot compromise with the compulsory business expenses. Therefore, your cash flow should be appropriate to support your expenses and reserve. To materialize this plan, you need to optimize the terms for business credit you allow. For example, if you allow 60 days credit, you may consider shortening it to 45 or 30 days. With more frequent cash flows, it becomes easier to manage the business expenses, only after which you may consider saving a part of it as your future working capital fund.

Identify and eliminate the unproductive expenses to the extent possible

Your purpose of optimizing working capital will not suffice just by expanding the revenues. Probably, it is more important to minimize the expenses. There will be various expenses for your business. Even if you cannot curtail all these accounts, it is certainly possible to identify the expenses that are unplanned and unproductive. Your task is to identify all these accounts and eliminate the same to the extent possible. It will enhance the cash flow, which will support you in sponsoring the production expenses and investments. You can utilize the surplus as a reserve for working capital.

Eliminate all the non-performing assets 

Every business will have certain assets that cease to perform its desired function. The chemistry behind a successful business is to control the tally of non-performing assets. While some non-performing assets can be reversed, others are not. You need to identify the assets that have turned permanently non-performing. Once you identify such resources, you should eliminate such assets at the earliest. Often businesses need to spend some significant amount on maintaining such non-performing assets. The expenses in this regard eat away a major part of your business revenues. But, it never produces any significant value in return. Please consider if you can monetize some of the non-performing assets. It would help if you utilized the proceeds from such monetization as your working capital.

The steps discussed above are highly effective in optimizing the working capital without complicating the usual business process.

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