Working Capital Management Tips for Startup Business Owners
For any business to succeed, business owners must be equipped with the skills and know-how to run a business. For those who had formal education or training when it comes to business, this may already be given. However, not all entrepreneurs had this exposure, so they rely only on their grit and passion to succeed. Regardless of whether they got their business acumen through formal education or otherwise, entrepreneurs should have a grasp of some of the important concepts of managing a business. One of these is the concept of working capital management. If you are a budding entrepreneur and working capital is something new to you, then on are on the right page by reading this article.
What is working capital management?
Working capital management is the effective management of a business’s finances to ensure that the business will survive and eventually grow. This involves clear planning of how to spend money and how to earn profits. In any business plan, working capital management is one of the top priorities.
Why is working capital management important?
Without working capital management, you are basically setting yourself up for failure. An aspect of working capital management is cash flow. You have to ensure that you have enough money coming in to finance your business’ operational and capital expenses, such as your employees’ salary, office rental, and the like. The importance of working capital management should never be set aside.
Working Capital Management Tips
Working capital management may sound scary, but it is actually easy if you keep in mind the following tips:
1. Monitor your Cash Flow Regularly
You should regularly monitor how much money you have in the bank, how much money you have on hand, your receivables, and upcoming expenses. If possible, you should do this daily. Also, check if your target sales are being met, as this is crucial in ensuring your cash flow is in order.
2. Ensure that payments are received on time
Businesses rely on customers’ payments to keep afloat, so it is crucial that your customers pay on time. Small businesses engaged in trade or retail may not have trouble with this as they get paid for their products upfront. However, if you are a supplier to other businesses, you can ensure timely payments by sending invoices with accurate terms. Follow up, if necessary, when you notice that the terms are not being met.
3. Update accounting records
As much as you want customers to pay on time, you also have to ensure that you pay your obligations on time, which you can do if you have updated records of your accounts. Monitor deadlines for payments and settle them on time to avoid paying penalties or late payment fees. This will also let you avoid operation problems, such as stopping production after your electricity has been cut due to missed bill payments.
4. Manage overhead expenses
Speaking of electricity, you must find ways to lower energy consumption and other overhead expenses. Savings from doing this may seem minimal, but when compounded, they may actually be a lot. For example, you may save on supplies by implementing a paperless approval system, or you can implement a work-from-home arrangement to minimize electricity consumption in the workplace.
5. Control your stocks
If you are selling products, make sure that you have the right amount of stocks. If you do not have enough stocks of popular items, you may lose potential sales. You may think it is safe to just overstock. However, if your stocks are not sold at the right time, you may not have enough space for your fast-selling products. If you have a clear record of your product sales, then you can make a better forecast of orders you have to make.
6. Do not forget taxes
Some startup businesses may not be aware of the taxes they have to remit to the government. Aside from value-added tax or VAT, there are other taxes, such as income and withholding taxes. You have to remit these on time to avoid fines and penalties. It is best to consult a professional accountant to ensure that all your taxes are in order.
7. Aim for self-sufficiency
A self-sufficient business is one that operates without financial assistance from investors or institutions like, banks through loans. Starting businesses may, of course, not be self-sufficient right away, but this is possible through effective working capital management. This should be your long-term objective.
8. Get additional financing
This may sound counter-productive, but it is not at all. The truth is, in business, you need money to make more money. Availing of an SME working capital loan may help you manage the working capital necessary for your business to survive and grow. You can avail of business loans until your business becomes self-sufficient.
Secure Working Capital Loan for Your Business
There are various types of loans available for businesses. For example, banks offer business loans, but these institutions often require good credit standing or collaterals, on top of various documentary requirements, for loans to be approved. This is where the problem lies, as small businesses often do not have these requirements. The best option for starting entrepreneurs is to avail of loans offered by non-bank financial institutions that cater especially to small businesses, like Esquire Financing Inc. or EFI.
EFI has been in the industry for more than a decade, and its objective is to help micro, small, and medium enterprises (SMEs) reach their potential. EFI understands that MSMEs have unique needs. That is why, unlike banks, EFI offers loan without collateral in the Philippines that has minimal documentary requirements and can be claimed in only days or less. Loans up to P10 million are released as long as all requirements are in order.
If you need additional financing to improve your working capital, apply in our loan applications page today to start fueling your business dream!