The Advantages of Managing Your Working Capital
Positive cash flow is an essential component for healthy business financing, but a strong working capital account can be even more important. Discover how you can use your available capital to grow your business and manage any emergency or short-term financial situation that may arise.
Your available capital can be fixed, regular and reserved. Fixed capital is the assets that your business is capable of liquidating to cover an emergency expense, but is usually unavailable for day-to-day spending. Regular capital is the cash in your account that you spend on inventory, operating costs and other upfront expenses. Finally, reserved capital is any savings or emergency funds you have access to.
Some companies enjoy a stable working capital account with all the funds necessary for normal operations and an emergency. For most small businesses, however, the amount of capital can vary dramatically. It’s critical that you find a way to manage your available capital to keep your business responsive.
Without proper management of capital, any financial crisis can cripple your company. A broken machine, terminated employee or loss of client can put a strain on your finances. By managing your capital, you can alleviate this strain and float your business through any rough season.
A strong account of available capital allows you to pay back debts on time. Poor available capital can cause you to miss payments, pay more on interest and have financial difficulties throughout the year.
One popular way to manage your capital is to use financing. Dynamic financing options, like a line of credit, business credit card or SBA loan, can offer you the flexible funds you need to keep up your available capital. Similarly, an equipment loan or mortgage allows you to secure the assets you need without spending all your available cash.
A healthy available capital account can also improve your credit score. Without capital available, you may miss payments and decrease your credit score. Work to build up your credit score by increasing your available credit, avoiding late payments and paying off your debts.
Working capital is an essential component of your finances. Whether you’re just launching a seasonal business or operating a year-round large-scale business, find out how you can improve your available capital and keep your business healthy and competitive. Don’t let sudden expenses or other emergencies cripple your company, but navigate business growth with confidence, plenty of available capital and a strong business plan.