3 Tips Small Businesses Use to Maintain Working Capital

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Working capital allows small businesses to take advantage of their next big opportunity. Capital management requires a business to have sufficient liquid resources for all of their daily operations. Working capital can be defined as the total short-term or current assets, which may include:

  • Cash
  • Securities
  • Inventory
  • Accounts receivable

Businesses need to find ways to properly maximize asset return and minimize the risk of insolvency. In 2014, 55,250 businesses filed for bankruptcy.

You can avoid becoming another statistic by properly maintaining working capital through:

1. Working Capital Loans

Loans aren’t bad. If you’re a small business owner, taking out a loan and ensuring that there is a return on your investment is a smart decision. Revolving lines of credit are also a great choice. Working capital loans can save a business when they have:

  • Late invoices that need to be satisfied
  • Marketing that needs to be done to generate revenue
  • Payroll that needs to be made

Working capital loans can include term loans, cash advances, invoice factoring, purchase order advances and a revolving line of credit. If maintaining working capital isn’t possible because of mismanagement or waiting on a pending invoice, a loan can save a business from a missed opportunity.

2. Streamline Monthly Expenses

You need to balance receivables with payables, and the best way to do this, aside from raising your prices, is to cut down on your expenses. It’s easy to do this by streamlining monthly expenses.

The first steps to take include:

  1. Focus on recurring costs
  2. Find ways to maintain current staff even during peak season
  3. Reassess monthly services

When you go through all of your monthly expenses, try and find areas where you can cut back and alleviate costs. Oftentimes, you’ll find that there are monthly services and other recurring costs that can be cut down to save money.

3. Manage Outflows Properly

You can make your accounts payable work for you. When you allow spending to run without oversight, you’re asking for trouble. You can choose to delay payments, being cautious of not paying late to maintain capital.

Charge cards can be used to make purchases when cash is tight.

You can also be creative. View all of your vendor agreements. Sometimes, vendors will offer a discount if you pay early. And if this discount is 2% on $100,000, that’s a significant amount of money you’ll be able to save for your working capital.

Leverage small discounts with strategic payments to keep money in your company’s coffers.

Melissa Thompson writes about a wide range of topics, revealing interesting things we didn’t know before. She is a freelance USA Today producer, and a Technorati contributor.