How effectively does your business manage its working capital? Working capital is the cash that enables your business to operate and to support growth. The key word here is “working”. Is the capital available in your business truly working for the business?
Insufficient cash or concern about future market conditions or outcomes often leads management to postpone, delay, or cancel planned uses of working capital. While these may be correct decisions, ask yourself the following few questions to begin evaluating how effectively your business is utilizing its working capital.
- How much working capital does your business really need? Taking the time to evaluate your working capital requirements in the context of the company vision and strategy allows you to take proactive steps to ensure funds are available when needed.
- Is the use of working capital aligned with strategic objectives? Make sure you fund strategic priorities first.
- Do you have a cash reserve? Every business needs a cash reserve. Building a reserve over time and little by little will give your business resilience and flexibility when market conditions change. Hold back a fixed portion of working capital each month to build your reserve.
- Is access to sufficient working capital becoming less of an issue over time? Using working capital effectively will generate returns for the business. These returns, in turn, should expand the available pool of working capital over time.