Does your business meet its working capital requirement? How can you tell? And how can you address it if you discover that you need to?
For any enterprise, the conversion of raw materials into finished goods takes time. Further, drawing revenue from the sales of those goods eats away at a company’s cash flow. But how can an enterprise take care of its daily expenses and other expenditures otherwise?
Firms that are able to do so keep a specific volume of cash or its equivalent readily available for these purposes. This liquid asset is called working capital. It serves the purpose of managing a company’s daily expenses.
However, businesses that have a deficiency of working capital must opt for business loans to ensure smooth running.
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How Is Working Capital Calculated?
Working capital is the difference between a company’s current assets and its current liabilities. In other words, it is the difference between:
- Current assets, including cash, accounts receivable, and inventories.
- Current liabilities, including accounts payable and short-term borrowing.
This financial metric measures a company’s short-term financial health. It gives insights as well about its liquidity and operational efficiency.
Does Your Company Meet Its Working Capital Requirement?
The following factors determine whether a company meets its working capital requirement:
1. The Length of Your Operating Cycle
Businesses with long production cycles need more working capital than do businesses with shorter production cycles.
2. The Nature of the Business
Manufacturing businesses cannot obtain revenue instantly from the sale of their goods. Therefore, they need more in the way of working capital. In contrast, retail establishments can sell their goods quickly. This eases their need for a large amount of working capital.
3. The Nature of Your Production Technology
Technology-intensive firms require less working capital than do labor-intensive firms. In both cases, most of the working capital goes toward paying wages and salaries. Moreover, by using the latest technologies at their disposal, these companies are better able escalate production. This helps them to surpass their break-even points quickly.
Seeking Working Capital Financing
Is your company in the unfortunate position of having insufficient working capital? If so, seek out a working capital loan. These loans are explicitly designed to help companies like yours meet their operational expenses.
This corporate debt ensures smooth functioning by taking care of daily expenses. Your company will no longer be dependent upon on unstable and changeable sales revenues.
The Benefits of Working Capital Loans
With sufficient working capital, your company will benefit in multiple ways:
Better Inventory Management
Regular restocking of depleted inventory is crucial for efficient functioning. With stable working capital financing at hand, your business will enjoy hassle-free operations.
Easy Debt Financing
This sort of financing doesn’t require firms to provide ownership to lenders. Contrast this with funding from venture capital. In these situations, a business owner needs to share ownership and decisions. However, this is not the case with a working capital loan.
Maintaining Cash Flow
With working capital financing, you will have steady cash flow. This will help you to maintain stability in your business. In this respect, loans from reliable financial institutions such as Bajaj Finserv can be helpful.
Look to their pre-approved offers on working capital loans and their relatively fast disbursement. In other words, your business will have independence from its financial obligations quickly. Moreover, applicants need to provide only minimal documents and adhere to simple eligibility criteria. In other words, it’s easy to obtain a loan from Bajaj Finserv.
Credit Line Advantages
With a credit line, your firm will have the advantage of a certain amount that it can withdraw as needed. Then, you’ll need to pay interest only on the amount you have used. You won’t need to pay interest, in other words, on the entire credit line.
An End to Cash Flow Problems
A working capital loan can help your business fill the gap between cash inflow and outflow. In short, this loan will supply your business with its working capital requirement.
Moreover, with sufficient working capital, your company can overcome its liquidity crisis. It will have a financial cushion and its cash flow problems will become a thing of the past.