Whether you’re an early-stage, growing, or established business, having enough working capital is essential to survive your day-to-day operations. Without positive working capital, you may have a hard time paying your employees, lenders, vendors, and other operational expenses on time.
In this article, we define “working capital” and explain why it’s essential for any business to thrive.
What is working capital?
Working capital, simply put, is the funds available to a business, used in day-to-day operations. To compute your working capital, subtract your liabilities from your current assets. (Current Assets – Current Liabilities = Working Capital).
Current assets are assets expected to be sold or otherwise used within one fiscal year. This includes cash, inventory, and accounts receivable.
Current liabilities, on the other hand, are your business’ debts that are to be settled in cash within the fiscal year. This includes accounts payable, accrued expenses, taxes, legal fees, and other debts.
A lack of working capital can get you into trouble, or worse, business failure—and that’s something you don’t want to happen! To help you see the importance of having enough working capital, below are the five areas where working capital is essential.
1. Managing daily business activities
With enough working capital, you can pay the day-to-day expenses of your business without having to worry about the shortage of funds. It ensures that you can purchase raw materials from your suppliers and pay unexpected operational expenses on time.
2. Growing your team
If you want an efficient team, you have to consider investing in your employees. Invest in seminars or training to groom your employees. Not only will these keep your current employees, but they will also feel motivated and valued.
Having enough capital can also help you hire more employees necessary for your business growth. When you’re short-staffed, it can lead to missed opportunities to grow your business. Sure, it can keep you from adding overhead costs, but having overworked employees will likely decline their performance in the long haul.
You can get a working capital loan to hire new members of your team so you can meet the needs of your growing business.
3. Providing quality service
When growing your business, you will not only need a team but also equipment to ensure the quality of your services or products.
For instance, your business’ equipment needs repairs, but you don’t have sufficient working capital to do so. Can you imagine how that can affect your operations? With additional working capital, you can afford to repair or buy equipment.
4. Engaging with your customers
As a business owner, you should understand the importance of keeping your existing customers while reaching out to new ones. Your customers will not just walk into your store unless you are already an established brand. You need marketing efforts, from online advertisements to digital marketing campaigns, to constantly engage with them.
Don’t neglect such efforts because of budget constraints. Having a good product isn’t enough for your business to succeed; you need some noise to reach out to the right market.
5. Expanding your business
No entrepreneur wants to remain small. Whether you’re opening a new branch or buying some additional assets, you’ll need working capital to make it happen.
Having sufficient working capital can keep your business up and running. At RFC, we have a working capital loan for entrepreneurs like you to keep you from financial stress and help you manage your day-to-day operations. Take the next step with RFC today!