Working Capital: Follow This Plan for Successful Growth
It doesn’t do your business any good if you use up your working capital each month to cover your current operating expenses. You need some left over so you can invest it back into your company for positive growth. How do you do that? There are some steps that you can follow to ensure that your profits work for you and not against you.
1. Always Look Toward the Future
You have your monthly reports in front of you and you can see your financial picture for the present, but what about the future? One way to make certain that your capital is working toward your business growth is to determine what your future funding requirements will be. Look at what you need now, then calculate what you’ll need later and plan toward that, including making any necessary adjustments to your cash inflows and outflows.
2. Diversify Your Assets
A successful business does not have all of its eggs in one basket. You want to diversify your assets just like an investor diversifies his or her portfolio. Don’t rely on a single line of credit or other funding tool. Look at your funding needs and then secure the money using different sources of financing. This gives you a broader scope of resources and, possibly, more operating cash flow to grow your business now instead of later.
3. Maximize What You Already Have
If you are a cash-only business, you’re minimizing your working capital and, as such, your growth opportunities. You need maximize your current cash flow to increase what comes in as opposed to what goes out. Electronic invoicing, accepting debit and credit cards, and reviewing your ledgers to make sure your accounts receivables are due before your accounts payables are due are all ways you can maximize your cash flow for your current and future needs.
4. Test to See What Works Best
Just as you should diversify your assets and how you accept payment for your products and services, you should also test several operating cash flow plans to see which ones work the best for you. You might find that electronic invoicing increases remittance exponentially, which reduces your collection efforts, or you might find an immediate bump in your sales by giving your customers the opportunity to pay with plastic.
Working capital is the life-blood of your company, so you should always review your current cash flow and plan for your future cash flow needs. By doing so, you are ensuring that your business will grow successfully into the venture you envision it to be.