How you manage your working capital can make or break your business. It plays a big role in running your business from paying your staff, getting your supplies, to replenishing your inventory, and more.
With proper management of your working capital, you can avoid cash flow problems that can affect the overall operations of your business.
What is working capital?
Working capital is defined as the capital which is used for the day-to-day operations of the business. It is calculated as the assets minus the current liabilities. Working capital is simply the money you used to pay for the immediate expenses of your business.
For example, when you have a spike of orders for the product that you are selling, you would need to beef up your inventory in order to meet the demand. This means you need to pay for additional supplies or staff to make sure you can deliver your products on time or meet the current demand. It goes the same with service-based businesses. You need additional capital in order to hire additional employees.
Managing your working capital
Now that we know what working capital is and how it can affect your business, the next thing we need to understand is how to manage it to pave the way for your business’ success.
Here are some practical tips on how you can effectively manage your working capital.
1. Establish a good financial habit
Having a good financial habit can help your business in the long run.
It can start as simple as understanding and knowing the inflow and outflow of your business finances.
Here are something you can start to practice to establish a good financial habit:
- Separate your personal and business finances. It’s best to open a business account to help you track your business transaction properly and to avoid mixing your personal and business funds.
- Set a dedicated time to update financial information and transactions of your business.
- Review all your financial records to mitigate theft or fraud
By being proactive, you can prepare your business for what lies ahead in the future. If you want to succeed, you need to see the bigger picture and plan for the next five to 10 years. There will always be issues and challenges when it comes to your business. Learning how to plan and position your finances can help you survive the next unprecedented challenges like the pandemic.
3. Review and manage your inventory
Excessive or unsold stocks can hurt your business. Imagine your products just sitting in the storage and not being sold for profit. This ultimately affects your cash flow. Monitoring and managing your inventory is important for your working capital.
You have to review and monitor which items are sold, items on sale, items ready to be shipped to avoid inventory shortage and overstocking.
What if there are bulk orders from your customers but your working capital is not enough to meet the growing demand? This is definitely a good problem to solve for your business.
You can boost your working capital by getting a short-term loan. RFC offers an Inventory Financing Loan to help you restock products and fulfill orders.
4. Don’t be afraid to get loans
You need money to operate your business. When there is little money available, you can consider a working capital loan to make sure your business remains uninterrupted.
One of the options you can consider is to take a business loan. You don’t need to be afraid because there are business loans that offer flexible requirements with low-interest rates especially if you avail of collateral-based loans. For example, You can get as low as 1.5% monthly interest rate with RFC business loans.
Keep in mind that with proper management, getting a business loan can help you thrive and function on a day-to-day basis, and most of all, take your business to greater heights.
5. Consult the expert
There’s always something you don’t know the answer to yet, and that’s okay. When it comes to the financial standpoint of your business, it’s always best to consult an expert who can help you in analyzing your business performance.