Managing your small business capital is crucial. We believe that we are not exaggerating when we say that this is the main difference between insolvency and success.
While managing capital is very important for all small businesses, it is even more important when your business is in a competitive sector.
What Is Working Capital?
Simply put, the working capital is the difference between your short-term assets and your short-term liabilities. Or, if you want to be very specific, it is the difference between what your business owes and what it owns. As you can imagine, when you don’t have enough capital, you won’t be able to fund your daily operations or even consider a prosper future.
Since working capital is so important for all businesses, let’s check out how you can keep it under control.
1. Everyone’s Responsible For Maintaining The Working Capital
While most people still believe that the responsibility of maintaining the working capital is only of the finance team, the truth is that this is a responsibility that should be shared by everyone in the management team. In order to obtain the best results, you should implement some KPIs and make sure that everyone understands them.
2. Pay Your Suppliers In Time
While this may seem contradictory to everything that you may have heard or read before, the truth is that it works. When you make sure that you pay all your suppliers in time, they won’t need to waste their time chasing you. So, when you are negotiating the terms with them, you can be sure that they will be more flexible in what concerns the business terms and prices.
3. Keep The Control On Your Expenses
When you already have a large company, you probably think that you don’t need to look at all those small expenses. However, this is just the opposite of what you should do. No matter if the expenses are small or big, they need to be looked at, evaluated, and you need to determine if they paid themselves up.
4. Keep Your Inventory On Track
One of the things that many business owners tend to make is that they don’t have any control over their stocks. However, if you think about it, your stock that is in your warehouse for such a long time represents a huge amount that you could be investing in other things or simply building an emergency fund.
One of the main reasons that cause too many businesses to have excessive stock holdings is simply poor communication between departments. So, you need to ensure that this doesn’t happen. One of the things that you can do is to do quarterly or monthly stock checks.
5. Talk To Alternative Lenders
When you notice that you have a shortfall in your working capital, you should consider talking to alternative lenders. This way, you may get more advantageous terms with a lender who is willing to work with your company.