What is working capital?
Working capital or operating capital, is the difference between current assets and current liabilities. It is the life blood of a business organization and is used to determine a company’s operational efficiency and short-range financial capacity. Being the most liquid form of company asset, it is usually in the form of cash or can quickly be converted into cash. It’s used to pay a business’s current debts and expenses.
Working capital loans
For small businesses, getting a working capital loan is very difficult through conventional forms of lending organizations in the market, such as banks. Secured Money Solution’s goal is to help entrepreneurs in this regard. We fully understand that a stable performance of your business heavily depends upon a strong cash flow and good payment history.
With our advance business cash program, we can be able to customize a plan that allows you the funding you need, and quick. We can also help liberate your working capital via outstanding invoices, by buying some of your future credit card receipts at a discounted rate.
It is entirely up to the business how it uses the cash advance as Cityscape Financial place no restrictions in that regard. You may utilize it as essential working capital, to pay debt, for store refurbishment, for purchasing equipment and facility upgrades or even store relocation. The choice is yours.
Managing working capital
Working capital management is used to make certain that a company possesses sufficient cash flow, so that it can meet its short-term debt obligations and operating expenses. Basically, it’s an accounting strategy that is utilized to sustain competent levels of both elements of working capital, current assets and current liabilities, with respect to each other.
Working capital management is vital in running a business in the long run. Good management of working capital ensures that a business is able to pay off short term debts as well as finance its operational needs. It is also essential that business expenses be managed along with operational revenue generation. In case of failure in producing the necessary funds, a business may have to search for bail out plans from the government.
Cash flow ratios
Good working capital management depends upon the maintenance of reliable forecasting of capital accessibility. Accurate, up-to-date records of accounts payable and accounts receivable must also be maintained.
Cash flow ratios give an accurate scenario of a business’ financial standing and needs expert assessment. There are a number of cash flow ratios available for this purpose.
Current ratio is utilized to measure the capacity of a business to pay off liabilities by using the cash in hand. A higher rate of current ratio reflects a good working capital. Current ratio is also employed as a gauge to assess inventory turnover rate and its capacity to produce revenues in the operational cycle. Other useful forms of cash ratios include Acid test ratio and cash conversion efficiency.
Working capital management is heavily reliant upon a number of internal and external aspects that a business operates within. Internal factors to be considered useful in determining working capital management efficiency are company policy and working strategy, to name a few. External factors include economic climate, interest rates and banking policies, which play a huge role in raising money for funding daily activities.
Management of liquid assets also directly affects working capital. A company’s reliability to pay back current loans can be adversely affected by a lag in accounts receivables or slow sales. Hence the importance of managing liquidity position is paramount in getting a good working capital.