Do you have an efficient working capital cycle?
A working capital cycle is the amount of time it takes to turn the net current assets and current liabilities into cash. The longer this cycle, the longer a business is tying up capital in its working capital without earning a return on it. It’s important that you evaluate your cash inflows and outflows and ensure that it is as efficient as it could be, otherwise you run the risk of constantly increasing debt to fund cash shortfalls. Here are few tips to help you start the process: 1. Manage your payment terms with customers and suppliers. You should ideally not be paying suppliers within 30 days while your clients are only paying you after 60 days. Negotiate longer payment terms with suppliers and incentivise clients to pay you earlier by providing discounts or other benefits. 2. Manage inventory. Do not overstock or build up on inventory that lie idly in warehouses or storage. Finished goods should be sold. It may be worth evaluating your products and potentially cutting or decreasing the non-performing products or services. 3. Make sure you are analysing your business with up to date financial information. You can only make informed and accurate decisions if you have quality and current financial information. You can avoid situations like having to take on more debt because you’ve run out of working capital, by keeping up to date with the financial health of your business. Accurate financial information and key ratios and metrics will also help you identify avenues for improvement. Boraine Consulting offers services such as monthly bookkeeping, preparation of monthly management accounts and preparation of annual financial statements to monitor, maintain and evaluate the financial information of your business. We also offer consulting services and help clients with strategy, planning and problem solving with issues such as managing working capital. If you’d like a consultation, email us today at firstname.lastname@example.org