Working Capital: Does Your Business Have Enough?
As a business owner at one time or another, you will be unsure whether your working capital is sufficient each month to keep your business running. You’re not alone!
A 2017 report from Dun & Bradstreet and Pepperdine University's Gaziadio School of Business and Management shows 66% of small to medium-size businesses surveyed sought financing in the second quarter of 2017 because they needed more working capital.
This is the highest percentage in the history of this study, and further, the number of businesses that sought help is up to 22% from the same time a year ago. The study also showed that women and minority-owned businesses have the most significant difficulties in managing their working capital. Believe us when we say we understand the feeling, as our clients are saying the same thing.
Most business owners know that working capital is essential to the growth of their business. However, they sometimes do not fully understand how to maintain a positive cash flow.
Because we’re passionate about giving small business owners the opportunity to improve their business, we’re providing this informative article designed to help you learn everything from the essentials of working capital to the right business funding solutions.
What is Working Capital?
It is the life-blood and nerve center of any business. Working capital is a unique, yet changeable figure which affects how you grow your business. More importantly, it is not just to meet the daily operations of your company but also to enhance the various performances of your company. It influences some significant business decisions such as not being able to take advantage of new opportunities or develop a new product or requesting a business loan.
It’s important to note that working capital could be either positive or negative, as your business could either have more working capital or less.
Take a pen and paper right now. Write down the amount you think your business has at present to take care of short-term liabilities.
Here’s the deal:
Financing your business is a matter of ethical decision making and grabbing new growth opportunities which rely a great deal on your cash flow. There is no denying the fact that you have expenses such as office supplies, employees’ salaries, debt payments, and more to attend to every month. Nonetheless, to improve your business performance, it is vital that you calculate your business’ working capital. This boils down to the deduction between what your business owns and the amount it has to pay within a specific period. Let’s take a look:
Current Assets – Current Liabilities = Working Capital
In simple terms, working capital is what you have left when you subtract your liabilities from your assets.
You will need a balance sheet to figure this out. Here’s how it works.
How to Calculate Working Capital.
The XYZ Company has the following current assets and current liabilities for 2018:
Inventory - $300,000
Cash in the bank - $50,000
Outstanding accounts receivables - $200,000……………Total of $550,000
Debt Payments for the current year - $50,000
Company expenses for the current year - $200,000
Long-term debt for the current year - $15,000
Outstanding accounts payable - $200,000…………………..Total of $465,000
Subtract Total Current Assets – Total Current Liabilities = Working Capital
$550,000 - $465,000 = $85,000
After coming up with this working capital for one year, XYZ Company would realize that it has very little left after settling its debts and other expenses.
But it doesn’t stop there. To get the working capital ratio, divide the two figures.
$550,000 divided by $465,000 = 1.18 (approximately 1.2)
We recommend that you maintain a ratio from 1.2 to 2.0 since it implies that your assets are as much as your liabilities. In this case, XYZ Company has nearly enough working capital to meet its short-term expenses but may not have enough to satisfy all of its financial obligations within the coming year.
Does Your Business Have Enough Positive Cash Flow?
While we used a one-year period above, you can assess your working capital using a month or even a quarter. To find out where your business stands, answer the questions below:
Does your business have a high or low short-term liquidity?
Does your business have or lack enough cash to attend to short-term liabilities?
Is your current cash flow positive or negative and indicating quicker/slower growth?
If you’re on the positive side of these questions, then you’re on the right track, but if your numbers show that your business needs some fast cash, then you should consider taking out a business loan.
10 Common Cash Flow Problems.
Most of the causes of negative short-term liquidity are as follows:
Late payments from clients
Expenses are a little high
Suspended bill clearing
Inefficient planning of expenses
Inadequate account monitoring
Low price of products
Unpreparedness for emergencies
Delaying account receivables
Ordering too many products from vendors
Small Business Loan Solutions Helps Address Problems with Cash Flow.
If you’ve had to deal with any of the problems above, then you’ll understand the need for fast cash like most of our clients. The best way to get this is through small business funding.
Small Business Loans
Approaching an online lender can be an excellent way to get small business funding even though not everyone needs a five-figure loan. Irrespective, solving your business’ cash problems maybe a case of requesting $5,000 or higher to get positive working capital. So, how does this work?
Working capital loans are meant primarily for short-term expenses. Some of them include:
Merchant Cash Advance (MCA)
Bank Credit Line
With any of the above types of working capital loans, you can handle every outgoing expense like:
Unexpected financial expenditures such as equipment failure or the need to upgrade technology to improve efficiency (which will save you money in the long run)
Solve short-term cash flow problems
Access fast cash
Revenue to cover the off-season months
Extra inventory which may require funding
Meet payroll for a few months
Hire more staff and train new employees
Expand your business
Market your products and business with additional marketing
Some banks and organizations who lend money to business owners require collateral, do a hard pull on your business credit score or personal score, and potentially have other requirements before they fund the loan.
However, with PayPoint Funding, you can get funding within 24 business hours. We provide working capital loans and make the loan process smooth and fast.
The Basics of Short-Term Loans.
As a form of unsecured financing, short-term loans require no collateral and little documentation. Equally, they offer you fast cash especially when you’re in pressing need of funding. Short-term loans are perfect for emergencies and new opportunities which you cannot afford to lose because you lack cash in your business account.
How do you know if your business needs a short-term loan?
You need fast cash
Your business needs to balance out its cash flow
You prefer to pay debts in short-term (6 – 18 months)
You want to build your business’s credit score or increase your current score
Our funding amounts run between $5,000 and $1,000,000, and there are no hidden fees involved.
You could also apply for our Merchant Cash Advance which allows you to get funding even if your business credit is low. You only have to exchange a percentage of your future sales for a pre-agreed upon amount of capital.
This article has addressed some of the common problems which most small and medium-size businesses deal with at one time or another concerning their cash flow. At PayPoint Funding, we provided feasible solutions which you can employ to help you manage your business working capital.
Does your business lack the sufficient working capital to beat your competition right now? Do you have pressing expenses that can’t wait till your clients pay? At PayPoint Funding, we understand that small businesses need working capital to keep their options open and to pursue business opportunities as they arise. This is why we provide working capital to businesses across a variety of sectors across the United States.
We also understand that when business owners need financing, they need it now, not weeks or months from now. We have made our application process as simple as possible, with a minimum amount of paperwork and documentation required. You would not need to spend weeks gathering the necessary information. Instead, our funding specialist spends time with you learning about your unique company and visions for the future.
Contact us today @ 877.227.7760 and see if you qualify for fast, flexible working capital funding from PayPoint Funding. To apply online, use our no-obligation free quote form. We provide efficient funding solutions designed to meet your specific business needs, with competitive pricing, no hidden fees, and much more.