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Having a healthy working capital in the company is fundamental for the business. It is from there that you can keep your cash active and your company running.
After all, having cash in hand is essential to survive eventual losses and moments of crisis. This is what can define whether your establishment will remain open or not.
In addition, every company goes through times when expenses are greater than gains. and that’s why working capital is very important.
So, knowing and putting these tips and concepts into practice in your company will be the differential to keep the bills up to date. In order not to miss anything, we have prepared this article for you to know everything about working capital. Follow up!
What is working capital?
O working capital refers to cash reserve that the company has to be able to run in a healthy way, with the accounts in the blue. That is, it is a part of the financial resources needed to keep your operations running and your capital “turning” in the short term.
We speak of “turning”, because it refers to the whole capital movement of business. That is, payment of employees, purchase of materials, miscellaneous sales, among other things.
So, to summarize, having a well-managed working capitalallows the business to have enough movement to function properly until revenues come in.
To get an idea, during this cycle, there are resources that enter and others that leave. However, it is normal to have, at certain times, more expenses than sources of income. That’s why it’s very useful to have enough working capital to pay the bills.
For example, the longer the deadline for receiving sales, the greater the demand for cash on hand. So, the ideal is to have enough working capital to pay the bills in the interval between payments and receipts from the company.
understand how it works and what is working capital? It is with him that it is possible to keep the financial health of your business up to date. In addition to knowing whether you can invest in other areas or not.
How important is working capital?
The importance of working capital is closely linked to the company’s financial planning. From knowing how much money is needed to run the business when opening it, to having a sense of cash flow.
By having this notion, you will have more idea of the short-term disbursements. In other words, you will know how much money is needed to maintain the operation and also know how much will be left for investments, acquisitions, etc.
For example, to open a dental office, it is necessary to have capital to hire professionals, equipment, instruments, among other things. So, while the clientele does not come to cover the initial expenses, this working capital to finance these expenses, until you can get paid for the services.
Thus, the unused inputs constitute stagnant money, after all, there was no circulation of goods, so to speak. Now, if your business format involves medium or long-term sales, for example, then the tip is to pay even greater attention to working capital. Since your selling expenses will only pay off in a few months from now. With this, your working capital will certainly be higher.
this is the importance of working capital well managed. After all, if you keep it negative for a long time, it is dangerous to go into debt and, in the worst case, go bankrupt.
Types of working capital
Now that you know what working capital is and its importance, we are going to talk about the different types of capital for you to delve further into the subject. They fall into distinct categories. Are they:
- Net working capital: are the company’s financial resources such as property and real estate;
- Negative working capital: the negative is when the available resources are insufficient to pay off existing debts;
- Equity: it is simply the company’s equity, without the need for loans.
- Associated with investments: the capital to cover the expenses that the company will have when making a certain investment, such as financing, for example.
By understanding these concepts, it is easier to understand the capital itself and its income. In addition to making better use of the available resources that the company has at its disposal.
How to calculate working capital
As stated earlier, it is necessary to have capital to invest in starting a business. Therefore, most of the time, expenses come before gains.
Therefore, every entrepreneur must calculate working capital requirement to find out how much you will need to have in the box. Of course, this amount depends on the business model. In other words, the longer the receipt period, the greater the amount required. So, it is more than necessary that this calculation should be part of your business routine.
Finally, to know how to calculate working capitalyou should consider two other terms that should also be part of your entrepreneurial vocabulary:
- Current assets: this corresponds to all good or capital that the company already has or should receive within a period of one year. That is, financial investments, savings, accounts receivable and inventory items.
- Current liabilities: this is every debt or obligation that the company has to pay. That is, accounts payable, taxes, payroll, among other things.
The formula for calculating net working capital, from the acronym CGL, is as follows:
Net Working Capital = Current Assets – Current Liabilities.
However, it is necessary to emphasize that to have an accurate result, you must keep the cash flow very detailed. Closely monitoring the venture’s profits and determining the time that the resource must remain until the next replacement or sale, are attitudes that a manager must do.
This formula is one of the most used in the corporate world because it is the most accurate. Since it takes into account all inputs and outputs, not just operational ones such as accounts payable and receivable. He is also called working capital net, and corresponds to the value that the company needs to honor its financial commitments.
Therefore, net working capital is the best way to know if your business can afford all the immediate expenses or not.
How to manage and maintain healthy working capital
Working capital is a resource that helps entrepreneurs to keep finances of their companies in good condition. And it is done in order to meet the pre-established needs, that is, fixed needs of your enterprise.
So, avoid extra expenses as much as possible. To help you on this journey, we will share some more tips for you to do optimal management of your working capital and do not resort to desperate measures. Ready? follow up.
expense control
Deeply analyze your costs and expenses, fixed and variable. In other words, do whatever it takes to save in the moment. And as we said above, it is necessary to keep attention on the cash flow so that there are no distortions in the data.
Have Discipline
We also analyze in this article, the importance of having a control of the working capital, as it can bankrupt you in a short time.
So, be ruthless with your financial control. The tip here is: when it is necessary to use the capital that is there to cover some expense, replace the amount when it enters the cashier.
Negotiate debt and interest
Renegotiating the interest charged on loans with financial institutions is a good way to cut expenses. Annually, you can re-evaluate contracts, whether with customers, banks or suppliers, in order to locate the points to be renegotiated. In order to cut costs.
Control the delinquency
Many businesses, subscription services, in short, rely on the credit card as an exclusive means of payment. This helps a lot to avoid customer default.
Having some other effective billing system is very helpful so that sales made are paid on time.
With suppliers, you can renegotiate delivery or payment terms, for example. Reaffirm that you will not part with the partnership, among other things.
Anticipate payments to be received
This tip can bring several advantages to your business. There are financial institutions that rely on prepayment of receivables. Of course, you need to keep an eye on the interest rates charged. Sometimes it’s not worth it.
However, there are cases of customers having some facility or partnership with the bank, which allows for more honest rates through some advantage of being a customer or partner.
bet on technology
It is true that technology, if used well, can be a great work tool. The big suggestion here is to control the administrative and operational work of your business with the Bling online management system.
We’ll talk about him later. Another important thing is to have a strategy for selling products that don’t come out often and are likely to win. After all, goods stopped in stock equals money stopped.
So have a disposal policy, for example, or a way to get them out of stock before then.
How ERP can help you organize and improve company management
As Bling’s ERPit is easier to manage the working capital of your company. Through a complete management system, which is possible to do everything in one place.
Bling’s software records information about customers, suppliers, products, sales, purchases, and more. So you follow the flow of inputs and outputs and still generate reports for accounting. Very practical, isn’t it?
Through it you can:
- Inventory control: to help you have a contingency plan in relation to products stopped in stock;
- Product catalog management: With the stock system, you can record all the information about your products, such as codes, description and prices.
- Synchronization of different stocks: here it is possible to work with the stock as one, the physical and the virtual.
- Automating inventory control: With Bling ERP, you can import an invoice for automatic filling and thus, the product enters the stock in minutes.
O Bling ERP it’s very intuitive and you’ll know exactly where to click. Regarding the financial health of the enterprise, it is possible to control the accounts payable with automatic authorization from the DRE, for example. Here are some more features of the Bling system.
- Divide your expenses into categories;
- Control of expenses with suppliers;
- Manage your cash flow through organization through categories.
- Accurate reports that help you in decision making.
It’s much easier to manage and keep working capital healthy with an up-to-date, ready-to-run management system. You are in control of everything that happens in the company. All this in one place and 100% online, without leaving Bling.
To help you even more in managing your company, customers have an exclusive benefit, which guarantees 3 months free for you to test Bling.
Oh, and this offer is only valid for new accounts created on Bling and not cumulative with other promotions. access right now site of Bling ERP and guarantee this benefit.
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