Take Stock of Your Working Capital
Does your company have the resources it needs to continue to grow? Your working capital is the amount of liquid assets and cash available to your company. Find out how much you need to grow your business and what you can do to improve your financial situation.
Calculate Your Available Capital
Determining the amount of resources available to your company is harder than it initially appears. You can simply check your business bank account, but this doesn’t paint a full picture. You need to also check how much inventory and other resources you already have, as well as the outstanding liabilities you’re about to pay.
The easiest way to calculate your working capital is to subject your current liabilities from a current asset. This calculation can change depending on the scope of your capital. Are you looking at the funds that are available to you at this moment, your monthly budget or your annual budget? Your answer to this question will determine the assets and liabilities to include in the calculation.
Monitor Your Financial Situation
Now that you know how much available resources you have, is this a healthy amount or do you need to take steps to grow your capital? There are many calculations you can make to see if you’re properly cash positive. Divide your current assets by your current liabilities. If the ratio is around two, then you’re doing well.
Anything below two means that you may struggle to pay your liabilities while still growing your business. A ratio more than two may seem like you have plenty of cash, but this can actually mean that you aren’t efficiently using all of your available resources.
Utilize Your Capital
Keep your cash flowing to keep your business growing. Holding onto too much cash isn’t going to grow your business, so invest it in inventory, marketing and other resources at your disposal. Manage your working capital amount to keep the ratio of current assets to current liabilities around two.
Grow Your Available Resources
If your capital amount is routinely below two, it’s time to consider financing. The right financing option can be just the boost you need to keep your company growing. Establish a thriving business by utilizing your resources and staying cash positive throughout the year. Competitive financing allows you to balance your financial situation and glide over rough patches in your year without missing payments to cover your liabilities.