If you are a new business starting to take off, or a well-established business looking to expand, you will need to understand the importance of working capital.
Working capital is a simple, albeit useful measure that businesses use to indicate their ability to complete day-to-day operations and also to assess their financial health. The amount of positive working capital a business needs to run efficiently can vary, depending on a wide range of factors. Such as business type, operating cycles, and any future growth plans.
So why is working capital essential for your business?
Having positive working capital means your business is able to meet its short-term financial obligations. It enables you to buy new materials and equipment and improve the running of your business.
1. Preserving Positive Cash Flow
Maintaining a good cash flow will allow you to fulfil obligations. Such as payroll, tax, rent, utility bills and other operating expenses.
2. Purchasing Inventory
You will need working capital to maintain stock levels and to secure new products to sell. It can also come in handy when larger upfront payments are required for things such as bulk orders.
3. Improving Equipment & Machinery
Working capital can be used when looking to improve your current equipment and machinery. For an example purchasing better software solutions to improve efficiency or upgrading equipment to increase productivity.
4. Investing & Growth
Sudden investment or growth opportunities may come your way. Immediate working capital is essential to take advantage of these.
Your business can take a variety of steps in order to effectively manage your working capital. From simple tasks such as identifying your day-to-day cash requirements, to shortening the credit terms you offer and constantly evaluating your inventory needs. You may also look to obtain finance to boost your working capital during times of increased financial liability or periods of decreased sales.
If your business owns equipment or machinery, you may consider a sale and buyback financial arrangement to gain access to additional cash. This involves your business selling its equipment to a financier, who will then immediately sell it back to you, generally as terms over a number of years. This provides you with a timely cash injection of working capital, whilst still maintaining access to the asset needed to continue trading. This then allows you to redeploy capital that was invested in assets, back into the core business. Generally, assets that can be used include business vehicles, commercial vehicles, commercial equipment, heavy machinery, farming machinery and more. Our team of experienced finance brokers are available to assist.
Raising capital through your business assets could help solve cash flow issues both short and long term whilst providing taxation benefits. We have access to lenders that do not discriminate between goods, industries or profiles and have terms that are flexible. We are providing tailored solutions to meet your needs and goals.
PMG Finance has access to a range of commercial products to provide cash flow for your business. Our team of dedicated finance brokers can provide you with information and access to financial solutions that will allow you to grow your business.
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DISCLAIMER: The above content is to provide general information and does not constitute financial, legal or other advice. This means that duties and requirements imposed on people who give financial advice do not apply to this content. For advice contact your accountant or legal advisor.