Managing Working Capital Responsibly
It’s easy to look at your business’s working capital and see a pile of opportunities, especially if you have been flush lately. It can be tough to remember that you don’t always know when that sum will be replenished, though, especially if your income can be unpredictable due to long invoicing cycles or other structural issues. So how do you decide what you can afford to spend and when? The key is to managing your upcoming cash flow commitments, reserve cash, and working capital in balance. That gives you a better idea of your medium-term expenses, which allows you to make better decisions about how to spend your cash on hand.
Cash Flow Management Resources
One way to make sure you can use your working capital for opportunities and not regular expenses? Finding cash advance options that keep your bills paid by leveraging business assets during low cash flow periods so you don’t have to tap into the working capital you’re using for projects like marketing campaigns. This requires you to budget the cash flow income well in advance, and it takes time to master, but it’s a great way to gain peace of mind about your decisions to invest in opportunities without running short of cash for bills.
Raising Capital Quickly
Another option is to establish cash advance or short-term financing resources that provide you with working capital so you can take advantage of opportunities without disrupting your cash flow. In this model, you use the business assets that you have on hand to get the capital you need for inventory, additional labor, and other investments. Then, the additional resources allow you to make more money and increase your profits, making it easy to pay off the financing package when it comes due. This is a strategy often used by retail businesses dealing with seasonal demand surges, and it is very effective when thoughtfully employed.
Calculating Burn Time
The key to using your working capital with confidence is maintaining a cash reserve for emergencies, because it is possible to tap your cash management and capital raising resources only to find an unexpected issue has popped up. That’s why the third pillar to capital management is a real cash reserve that provides your company with adequate burn time during zero-income periods. This reserve also helps you pay off financing in the event of a miscalculation, preserving your credit score and providing a hedge against the risks you take when short-term opportunities pop up.