Working Capital: 10 Ways to Improve Your Cash Flow | Joseph Olowoyo posted on the topic | LinkedIn (2024)

Your working capital is your oxygen tank for your business.Have too little, and you’ll be constrained with your ability to operate.Have too much, and you’ll be underutilizing the returns you can get with your idle cash.Let’s do a deep dive on Working Capital, with 10 ways to improve➡️ What it meansThe amount of liquid assets that a company has available to meet it’s short term obligations➡️FormulaCurrent Assets - Current Liabilities➡️ Examples of Current AssetsCash & Cash Equivalents, Accounts Receivable, Prepaid Expenses➡️ Examples of Current LiabilitiesAccounts Payable, Accrued Expenses, Credit Cards➡️ 10 Ways to improve Working Capital1️⃣ Charge customers in advanceCharging upfront means you never have to worry about a bad debt expense, and collect sooner2️⃣ Charge customers on autodebitCustomer’s don’t like to be reminded that they need to pay youWhen you charge them automatically, you make the process easier on both sides3️⃣ Follow up continuously with customers on receivables balanceIf you have a receivables balance…don’t assume that customers will just naturally payFollowing up on overdue balances is a MUST in order to get paid4️⃣ Monitor all subscriptionsBe sure to monitor subscriptions on an ongoing basis, or you’ll find yourself paying for something you aren’t using5️⃣ Hire fractional consultants instead of full time employeesHiring a fractional consultant can often times be much more affordable than a full time employeeYou’ll also save money on payroll taxes, health benefits, and other incidentals6️⃣Raise Capital AHEAD of when you’ll need itNeed to raise capital? Be sure to know exactly when you’ll need the capital, and start planning in advanceIf you’re caught by surprise, you’ll almost definitely have more friction7️⃣ Raise Equity over DebtThis can help you save money, as you won’t have to pay interest or repay the principalBut also comes with a tradeoff…since you’re sacrificing future cash flows of the business to be distributed to a new investor8️⃣ Require ACH over Credit CardCredit cards charge 2.9%. If you’re selling a low ticket item, that may not affect you much…But if you are selling 10s of thousands, that amount can really add up9️⃣ Ask suppliers for net 30+You may not be able to collect money more quickly - but can you get approval to spend money more slowly?Just make sure your suppliers aren’t reading this post 😉🔟 Get a better grip on your financial dataImproving cash flows takes ACTIONand before you can take ACTION...you need DATAThat’s our take on working capital, and 10 ways to improve it - what would you add?Let us know in the comments below 👇PS: Need help with your Finance & Accounting function?Book a free call with us to discuss how we can help: https://bit.ly/47dbyWR

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More than 30% of new businesses fail due to working capital challenges.Working capital can end up a constant tug of war between sales, procurement, and finance as you try to balance signing contracts with the financial needs of the business.As FP&A professionals, we can add value by bringing creative solutions, guardrails, and consistency to the table.Check out this great resource from Mighty Digits on 10 ways to improve working capital.#corporatefinance #workingcapital

optimal working capital is ideal to run a business effeciently.

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Your working capital is your oxygen tank for your business.Have too little, and you’ll be constrained with your ability to operate.Have too much, and you’ll be underutilizing the returns you can get with your idle cash.Let’s do a deep dive on Working Capital, with 10 ways to improve➡️ What it meansThe amount of liquid assets that a company has available to meet it’s short term obligations➡️FormulaCurrent Assets - Current Liabilities➡️ Examples of Current AssetsCash & Cash Equivalents, Accounts Receivable, Prepaid Expenses➡️ Examples of Current LiabilitiesAccounts Payable, Accrued Expenses, Credit Cards➡️ 10 Ways to improve Working Capital1️⃣ Charge customers in advanceCharging upfront means you never have to worry about a bad debt expense, and collect sooner2️⃣ Charge customers on autodebitCustomer’s don’t like to be reminded that they need to pay youWhen you charge them automatically, you make the process easier on both sides3️⃣ Follow up continuously with customers on receivables balanceIf you have a receivables balance…don’t assume that customers will just naturally payFollowing up on overdue balances is a MUST in order to get paid4️⃣ Monitor all subscriptionsBe sure to monitor subscriptions on an ongoing basis, or you’ll find yourself paying for something you aren’t using5️⃣ Hire fractional consultants instead of full time employeesHiring a fractional consultant can often times be much more affordable than a full time employeeYou’ll also save money on payroll taxes, health benefits, and other incidentals6️⃣Raise Capital AHEAD of when you’ll need itNeed to raise capital? Be sure to know exactly when you’ll need the capital, and start planning in advanceIf you’re caught by surprise, you’ll almost definitely have more friction7️⃣ Raise Equity over DebtThis can help you save money, as you won’t have to pay interest or repay the principalBut also comes with a tradeoff…since you’re sacrificing future cash flows of the business to be distributed to a new investor8️⃣ Require ACH over Credit CardCredit cards charge 2.9%. If you’re selling a low ticket item, that may not affect you much…But if you are selling 10s of thousands, that amount can really add up9️⃣ Ask suppliers for net 30+You may not be able to collect money more quickly - but can you get approval to spend money more slowly?Just make sure your suppliers aren’t reading this post 😉🔟 Get a better grip on your financial dataImproving cash flows takes ACTIONand before you can take ACTION...you need DATAThat’s our take on working capital, and 10 ways to improve it - what would you add?Let us know in the comments below 👇PS: Need help with your Finance & Accounting function?Book a free call with us to discuss how we can help:https://bit.ly/47dbyWR

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Working Capital = CA - CL = the Oxygen of your business. Know this formula, and manage it! Here's how, by Mighty Digits.

Your working capital is your oxygen tank for your business.Have too little, and you’ll be constrained with your ability to operate.Have too much, and you’ll be underutilizing the returns you can get with your idle cash.Let’s do a deep dive on Working Capital, with 10 ways to improve➡️ What it meansThe amount of liquid assets that a company has available to meet it’s short term obligations➡️FormulaCurrent Assets - Current Liabilities➡️ Examples of Current AssetsCash & Cash Equivalents, Accounts Receivable, Prepaid Expenses➡️ Examples of Current LiabilitiesAccounts Payable, Accrued Expenses, Credit Cards➡️ 10 Ways to improve Working Capital1️⃣ Charge customers in advanceCharging upfront means you never have to worry about a bad debt expense, and collect sooner2️⃣ Charge customers on auto debitCustomer’s don’t like to be reminded that they need to pay youWhen you charge them automatically, you make the process easier on both sides3️⃣ Follow up continuously with customers on receivables balanceIf you have a receivables balance…don’t assume that customers will just naturally payFollowing up on overdue balances is a MUST in order to get paid4️⃣ Monitor all subscriptionsBe sure to monitor subscriptions on an ongoing basis, or you’ll find yourself paying for something you aren’t using5️⃣ Hire fractional consultants instead of full time employeesHiring a fractional consultant can often times be much more affordable than a full time employeeYou’ll also save money on payroll taxes, health benefits, and other incidentals6️⃣Raise Capital AHEAD of when you’ll need itNeed to raise capital? Be sure to know exactly when you’ll need the capital, and start planning in advanceIf you’re caught by surprise, you’ll almost definitely have more friction7️⃣ Raise Equity over DebtThis can help you save money, as you won’t have to pay interest or repay the principalBut also comes with a tradeoff…since you’re sacrificing future cash flows of the business to be distributed to a new investor8️⃣ Require ACH over Credit CardCredit cards charge 2.9%. If you’re selling a low ticket item, that may not affect you much…But if you are selling 10s of thousands, that amount can really add up9️⃣ Ask suppliers for net 30+You may not be able to collect money more quickly - but can you get approval to spend money more slowly?🔟 Get a better grip on your financial dataImproving cash flows takes ACTIONand before you can take ACTION...you need DATA

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Working Capital how can I love thee better? Let me count the ways... Another great post from Mighty Digits reinforcing knowledge you may already have but perhaps aren't utilizing well enough to get the most out of your capital without intentionally or accidentally putting any further constraints on your business than you already have.

DepreciationIn business, depreciation does not have a big name like profit does.When people hear the word business the first thing that comes to their mind is profit.But there are other factors that have great impact in the productivity of businesses, and one of such factors is depreciation.Depreciation is not a negative factor, most businessmen always see it as one of the worst thing that can happen in businesses.The thing is that most of us do not even understand what depreciation is, what it stands for and how to deal with it.Infact, depreciation is a signal that your business is productive because your assets can only lost value when it is being used, except in cases of obsolescence.Depreciation only have a negative effect on your business when it is not properly managed.The concept of depreciation is not difficult to understand.To a lay man, depreciation is when something you own becomes worth less over time because of constant usage or newer and better alternatives available in the market.As a businessman, you should know that depreciation is a concept used in accounting and finance to describe the decrease in value of an asset over time. It is a way of allocating the cost of an asset over its useful life. The laptop you bought six months ago for your graphic design business cannot be sold today at the same price you bought it because of the following factors:1. Usage: the purpose you bought this laptop was for production, and you have used it in the pass six months to create valuable graphics. As the laptop is creating value, it is also loosing value.2. Passage of time: Time is also a major factor that reduces the value of an asset. Some assets become obsolete as a result of passage of time. Especially assets with expiring dates.3. Advancement in Technology: we are in the era of technological innovations. Newer versions of products, equipments, and tools we used in production are being invented every year. The IOS you bought two years ago has a newer version of it in the market today, and people are opting for it because of the new features. As more people are buying the improved version, the older version in your hand is losing value. It is depreciating.There are other factors that brought about depreciation, but these are the most common among them.As your asset is loosing value, it's life span is reducing, it's capacity is decreasing, and productivity is declining.So, how do you secure your business assets? In my next post, I will explain "how".If this topic interest you, follow the link in the comment box to read more from my blog."Your business health is your responsibility" #accounting #business #accounTify#the_small_business_accountant

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Recession Proof: Why You Need to Know Your Minimum Working Capital FigureIn these uncertain times, businesses have to be cautious about their cash flow to ensure that they survive economic downturns. One crucial aspect of cash flow management for businesses is understanding the minimum working capital figure it needs to keep its operations running. Understanding this figure is essential for businesses that want to thrive and remain recession-proof, regardless of the economic environment.The minimum amount of cash needed to keep your business operational.The minimum working capital figure required for a business is the amount of cash that the company needs to keep its operations running. This figure includes the amount of cash required to pay wages and salaries, rent, utilities, taxes, and other necessary expenses. It is crucial to keep enough cash on hand to cover these expenses since failure to do so can put a business at risk of a cash flow crunch, or worse. Your working capital finance mix.Once you have calculated your minimum working capital figure, the next step is determining how to finance it. At a basic level, a company's working capital finance mix comprises cash on hand, debtors, creditors and lines of credit used to fund the cash reserves required to keep its operations running. Essentially, the working capital finance mix is the combination of capital structures used to fund the business' short-term financial needs. Maintain adequate working capitalMaintaining adequate working capital is crucial to running a successful business. Companies that don't keep access to enough cash reserves to cover day-to-day operations are at risk of facing cash flow problems. Such problems could make it difficult to pay suppliers, employees, and creditors, leading to an unstable financial situation for businesses. To maintain sufficient working capital, companies should measure their finance mix and implement a system of cash flow tracking to plan and manage the business's cash flow horizon. Being forewarned is being forearmed when it comes to navigating gaps in your business cash flow!Knowing your company's minimum working capital figure is essential for running a successful and recession-proof business. Without enough cash reserves, a company may struggle to cover its expenses and meet its financial obligations, leading to financial instability. On the other hand, maintaining a healthy working capital position enables businesses to weather economic downturns, take advantage of opportunities, and build a robust financial foundation for growth. With the right financial management strategies, companies can optimise their working capital finance mix and enjoy the benefits of a healthy and resilient working capital position.Need some help to get more control of your business cash flow? Let's talk so we can map out your cash flow horizon.#workingcapital #cashflow #businesscoaching #techandtradiecoach

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