How can I improve my business's working capital?
In this text, you'll discover how to improve your business's working capital with essential tips.
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If you've started a business but weren't able to invest enough in your working capital initially, you should improve this tool as soon as possible.
Working capital is crucial to a company's financial health. It plays several important roles.
Therefore, it's essential to create efficient and well-structured capital. In today's article, you'll discover how to improve it, its importance, and its purpose.
So, be sure to check it out!
What is working capital and why is it important?
Working capital is the amount of money your company needs to operate on a daily basis.
It is the difference between current assets (everything that is convertible into cash in the short term, such as accounts receivable and inventory) and current liabilities (everything the company needs to pay in the short term, such as accounts payable and taxes).
A healthy working capital is essential to the success of your business. It ensures you have enough cash to, for example, pay your bills on time.
As a result, it avoids late payments, which can harm the company's reputation and generate interest and fines.
Additionally, it also serves to ensure that you can maintain a good level of inventory.
In this sense, with adequate inventory, you won't run out of products to waste and you won't miss out on business opportunities.
Furthermore, with positive working capital, you have the opportunity to invest in new products, services, marketing, and expansion of your company.
It serves the day-to-day operations of your company, which may include, for example:
- Purchase of products;
- Supplier payments;
- Payments of expenses;
- Investments in marketing;
- Employee payments.
+ Learn more about working capital and how to do it in the text on the SEBRAE portal
How can I improve my business's working capital?
In the following paragraphs you will find some useful tips that will help you improve your business's working capital.
1. Negotiate longer terms with suppliers
By requesting longer terms from suppliers, you will have more time to pay and organize your finances.
With a longer term, you can have more time to sell your products and receive payments from customers before you need to pay your bills.
Don't forget to pay your suppliers on the agreed date, on time, to avoid losing good suppliers and to stay true to your word.
If sales are higher than expected, you can pay this expense in advance.
This action may involve buying less cash and more on credit as well, as this helps keep more cash available in the cash register.
However, it is an action that must be practiced with great financial intelligence to avoid accumulating debt and excessive interest.
2. Reduce inventory
Another important measure for those who need it improving working capital is by reducing inventory.
Keep only the stock necessary to meet your sales needs.
A high inventory level can leave you with a lot of cash sitting idle, which can harm your working capital.
As mentioned earlier, working capital is important to keep inventory at a good level.
However, this means doing it on a balanced level; it doesn't make you miss out on sales opportunities, but it also doesn't leave you with money stuck in stores.
Consider adopting an on-demand inventory system. This reduces storage costs and frees up capital.
Knowing how to manage this department is very important to maintain positive and healthy working capital.
3. How to Improve Working Capital: Accelerate Accounts Receivable Collection
Another action is to speed up the collection of accounts receivable. However, this step must be carried out with great responsibility and consistency.
Among the smartest measures you can take, you can, for example, offer discounts for cash payments or pay your customers in installments.
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4. Cash sale
Offer discounts for cash payments. This can help you receive cash from your sales faster and improve your working capital.
In addition to discounts, you can offer other types of rewards to those who buy in cash, thus building customer loyalty.
5. How to improve working capital: anticipate receivables
It is also possible to advance receivables from your sales with banks or financial institutions.
Therefore, this initiative will give you access to the money from your sales before receiving it from customers.
However, it must also be done with caution, as interest may be added.
6. Get financing
If you need more money to finance your working capital, you can obtain financing from banks or financial institutions.
Before deciding, research and compare the available options to choose the best alternative.
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7. How to Improve Working Capital: Use Technology to Increase Productivity
In our last tip for To improve your business's working capital, we recommend using technology.
You can use it to automate processes and utilize management systems and tools that optimize financial management..
With this tool, you can save time and money, which can positively impact your working capital.
Don't forget to also monitor financial indicators, as they allow you to identify problems and take preventive measures.
Conclusion
Improve your company's working capital is essential to your success.
By following the tips above, you can ensure you have enough money to fund your day-to-day operations and invest in your business's growth.
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