O working capital it is a vitally important factor for any and all businesses that want to get off on the right foot in the market. So that, when thinking about any type of investment, from the largest to the smallest, the entrepreneur has everything in the palm of his hand.
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In this way, there would be no better way to start a job, either in a window cleaning company in height or even in a tailor shop, than stipulating, first of all, what are the pecuniary limits of each of the actions, so that everything works.
For everything to happen properly, it is necessary to be aware that, for each action, an investment is necessary that, most of the time, costs a lot and when it is not beyond the company's possibilities, it often constitutes a possible risk.
So, before even thinking about documents delivery or investing in specific strategies, it is necessary to bet on a serious and in-depth study on the subject of money, so that it is possible to estimate expenses and predict profits or losses.
For this reason, and for this need to be better understood by all people who wish to become entrepreneurs, or to grow in the market, for those who already undertake, this article will address the issue of efficient management of working capital.
So that even oneroman blinds bedroomcan be well sold in stores, or even a consultancy service can be well marketed, the article will bring the concept, the way to calculate and what must be done to have this capital in the company.
Finally, and for the instruction to be complete, some arguments will be raised in favor of the importance of this criterion, in addition to teaching how to correctly manage working capital.
What does working capital consist of?
In a simplified way, it is possible to say that this capital is the money needed to maintain an enterprise and to guarantee the continuity of the company.
Furthermore, it encompasses all cash amounts that are deposited into bank accounts and accounts receivable, along with other outstanding obligations that can be converted into equity to pay off business expenses.
It is this criterion that determines the amounts available for the company to fulfill its duties and make new investments, even when faced with failures such as customer default or a drop in sales.
In this way, it enables financial health and facilitates management, as it allows the institution to acquire equipment, maintain inventories and be able to make payments in advance with consumers, without running the risk of hurting its own budget.
It is with this financial strength that the company gets everything it needs, even if it does not work with the sale of products. Until the commercialization of outsourced building maintenance servicescan join the list of examples of these cases.
When opening a business, it is essential that the entrepreneur observe several points, such as formalization, the acquisition of equipment and obtaining authorizations from the inspection bodies.
On the other hand, working capital can be neglected due to the lack of information about its importance for the financial well-being of a business.
In a way, this can have extremely bad consequences for the company, such as financial problems and even bankruptcy.
For these and other reasons, calculating working capital is extremely important. Net working capital communicates an estimate of a company's financial health.
So that it even becomes possible to think that it gives an almost direct answer to the very question of whether or not the institution manages to pay its debts and short-term bills effectively. Thus, it is very important to have a positive balance.
Learn how to calculate working capital
As we have already seen, having and managing a company's working capital must be a priority for any institution that seeks success. So the next step is to find out how to make this account.
The first step in calculating working capital is to meticulously measure all monthly expenses, fixed and variable, and achieve the perfect amount for the smooth running of your venture.
To start the conversation, you should calculate the average term that the company has for accounts payable, of all those made with suppliers.
To cite an example, by having 50% of payments to suppliers upfront and another fifty percent paid after thirty days. Thus, on average, the payment period for suppliers is fifteen days.
After that, the average collection period must also be calculated. You need to think about how long, on average, customers take to pay.
For example, if part of the customers make the payment within thirty days, and another part, within sixty days. The sum of the terms must total ninety. That is, on average, the company receives from its customers every forty-five days.
Thus, it has already been possible to discover that there is a delay of forty-five days to receive from customers, but to pay suppliers, it is necessary, on average, to make payment every fortnight.
This means that, to make up the difference of those thirty days of term, working capital is necessary, even if it is in a company of domestic cleaning service.
There is a practical way to find out the ideal amount of working capital that the company needs to have.
Therefore, planning, organization and control are essential for entrepreneurs who want to have their accounts healthy.
The formula indicated by Sebrae for counting working capital is all accounts receivable plus the amount that the company has in stock, minus accounts payable, plus the amount payable in taxes and expenses.
This is how it should be done, and this is the amount needed to make the business work for a certain period of time. That's working capital.
What does it take to have working capital?
Finally, it is time to highlight one more essential point about this subject. In order to even optimize the sale of a curtain of glass facade in a store, it is necessary that investments are under control.
In this way, to have a healthy working capital value within a business, it is necessary, first of all:
- Keep your feet on the ground;
- Carry out financial control;
- Optimize inventory management;
- Negotiate deadlines well with suppliers;
- Record the receipts well;
- Avoid keeping money still;
- Optimize product pricing;
- Avoid loans;
- Adopt a billing policy.
You can't think about taking big leaps or taking risky steps without the basics being up to date.
Through these first nine attitudes, it becomes possible to elaborate a good initial investment for a campaign in a company.
Importance of working capital
Having greater control and monitoring a company's working capital is essential to keep the cash flow always firm and strong, and to guarantee the continuity of the business, avoiding unpleasant unforeseen events.
It is essential to know that the value of working capital is directly related to other vital factors that are particular to each institution, from a aluminum profile factory to a digital marketing startup.
For this reason, it is very important to have the support of an accountant that understands your needs and knows your mode of operation to help you in this mission.
How to manage working capital?
Finally, and for the management of working capital to be well done, it is necessary to follow the following criteria:
- Establish a strategic plan;
- Negotiate well with suppliers;
- Keep stock under control;
- Maintain a good cash flow;
- Have a good billing system.
By following the initial guidelines, it becomes possible to speed up the process, getting more right and making less mistakes.
Final considerations
even one suspension specialist workshop automotiveneed to stick to the importance of the criteria behind the good management of the company's working capital. And it is only with the right efforts that it becomes viable to act in the current scenario of the world market.
Through the responsible, conscious and safe management of this good, it is possible to do a good job in any sector.
This text was originally developed by the blog team Investment Guide, where you can find hundreds of informative contents about different segments.
