In response to a recent post on LinkedIn regarding small business financing and how working capital was the cheapest form of financing, I got the following thoughtful email.
“On your most recent LinkedIn Post you write: ‘Sound working capital management is always the least expensive’; what do you mean by ‘Sound working capital management’?”
I responded shortly after with the following:
“Thanks for the email. By sound working capital management I am referring to managing accounts receivable, accounts payable, inventory and other assets and liabilities that are used in day to day operations in a way that gives the business the greatest cash flow. In addition and perhaps more importantly in having a good idea of what future working capital changes will look like. For example a business that is growing needs to know how much their receivables, inventory and parables are going to change, because all have a big impact on cash balances. It is possible that a business can grow itself into insolvency through poor management of its working capital. If I can be of assistance please let me know. I work with business owners to help them focus on their business with confidence that their financial shop is being well run. Thanks SDB”
For every dollar of sales, you need money to finance the sale. The amount you need depends on a number of factors including what your margin is, do you offer payments terms, do you need to carry inventory, do your suppliers want to be paid immediately and so on. These are the factors that drive your cash needs. Month in month out, if you know this you can plan your cash needs, and if you change it for the better you can get free money.
The Shared Finance Center provides outsourced accounting, bookkeeping and fractional CFO support to small business owners and in doing so we heavily focus on maximizing cash flow. We are headquartered in Roswell, Georgia and work with clients across the United States. If you think that this post would be helpful to anyone you know, please pass it along. Also please follow our blog for regular tips to grow your business.