Guest Blog: The Surprising Key to Your Business' Success

June 25, 2014

Although there are several key elements that are imperative to a successful business, one of the most crucial is that a business has plenty of working capital.

Working capital, in simple terms, refers to the cash a business requires for day to day activities. Without working capital, a business is simply in the gutter, unable to operate or meet its continuous operational needs. 

According to Ernst and Young, a global leader in assurance, tax, and investment services, “Working capital is the lifeblood of every growing business. As a business continues its journey to market leadership, their working capital agenda should inform and dictate all important business decisions.” Because working capital is a great indication of a business’s health, decisions that are based upon the working capital of a company will generally be in the best interest of that company at that point in time.

 Cash comes into businesses at different rates depending on their business cycle and industry type. Sometimes there are steady months and other times money comes in chunks throughout the year. 

So, what is a business owner to do if their working capital just isn’t working? 

When a business lacks working capital, one or more of the following should be considered: 

  1. A Working Capital loan- Short-term working capital loans are designed to smooth cash flows in order to pay expenses, take advantage of business opportunities, and help assist with unforeseen expenses. Short-term working capital loans allow businesses to seize opportunities they would have otherwise missed out on due to lack of cash flow.
  2. Manage Working Capital throughout- working capital is not just the financial department and top management’s problem, it’s everyone’s responsibility. Be sure that the company as a whole is cash-focused, even down to the operational level. Provide awareness training to ensure employees of all levels know the importance of working capital.
  3. Pay suppliers on time & negotiate pricing- Firms can benefit from discounts through early payment and bulk orders. Try to maintain great relationships with your suppliers and you’ll be in a position to negotiate a better deal. Also by paying suppliers on time, your payments will remain steady and cash-flow will remain smooth. 

It has been proven, that businesses with effective working capital, have more flexibility to take on new opportunities and typically generate more cash from their business. Simply put--- they have more to work with. 

With a sustained amount of working capital, a business can better prepare for the ups and downs of the economy, and will have the flexibility to not only survive but thrive in a market that may be extremely volatile.

This Guest Blog courtesy of Lauren Rockwell, a business writer who works on the marketing staff atLiberty Capital Group, Inc. She writes about the latest business trends and industry conditions, from international economics to small business funding and financing. Her blogs are intended to offer accurate and concise advice to readers.