Working Capital For Companies: How To Optimize It In Business?
Your control is essential to ensure that a business is in good financial health and grows and succeeds. cultivate advisors company consider working capital one of the main tools to get an idea off the paper, so we think it’s worth talking about it and giving some tips on optimizing the resource. Please keep reading and check it out!
What Is Working Capital?
To clarify the concept, working capital is that resource that will make production work; that is, it is a value that the entrepreneur needs to make his business happen.
It is a reserve to be used in the organization’s needs to carry out its activities. This includes cash on hand, account balance, goods in stock, and accounts receivable, which are assets that can be converted into the capital in the short term.
To put it another way, working capital is what is left if we subtract from the money available in the company the amount necessary to pay off its debts, both fixed expenses and any other type of expense.
This financial element is essential for the organization to pay its suppliers, maintain its stock and meet its operational needs. This means that it is essential for the company to grow sustainably and maintain its financial health.
How Does It Help The Company?
You can already see that working capital is significant for the profitability and survival of a company, right? By choosing a level of working capital that provides security for its risk and return standards, the organization has a better chance of achieving financial balance.
But that’s not the only advantage of proper resource control. It can also help the company to:
- keep your asset and liability accounts in balance;
- meet the needs of all operational activities;
- understand the ideal time to make purchases;
- know the deadlines you are capable of meeting;
- maintain positive cash, paying off short-term accounts;
- create long-term wealth.
When Is It Needed?
We have already talked to some people who said that working capital is only necessary when the company is starting its activities. However, we have already advanced that you need to maintain the operational continuity of your business.
Some basic calculations show that, in the first year of operation, the determined amount usually covers approximately 60% of the total expenses of an enterprise. This means that it may be necessary to resort to foreign capital or savings made in advance.
cultivate advisors company want to make clear that even if your business grows and you achieve good profitability, you must never break financial control. Some believe that constant profit does away with working capital, but without it, believe me, your finances can be in chaos.