The amount of money necessary to fund your operational expenses in a business is referred to as your working capital requirement. It is the lifeblood of any business. It refers to funds that are readily available in the form of cash or deposits and are kept on hand to deal with day-to-day activities. It is an important factor for businesses since it shows how well a company can pay its short-term obligations.
Having a plan helps you determine how much working capital you need in order to make your business a success.
How much working capital do you need?
In order to avoid running out of money, a firm has to have a working capital plan in place. A company’s working capital is the difference between what it owes its suppliers and what it owes its creditors. This is the monthly cash flow you’ll need to meet your obligations to suppliers and creditors. Keeping track of your company’s monthly cash inflows and outflows will help you better understand your working capital requirement.
The amount of working capital will also depend on your industry. For example, if you are planning on starting a business in the construction industry, you will need more working capital than if you are planning on starting a business in the food industry.
- Determine how much money your company will need in the future to keep it going.
Begin by assessing the company’s immediate working capital requirements, such as payroll, suppliers, utilities, rent, and taxes. Because these payments may not come at the same time as customer payments, you need to know how much money your company needs to meet its working capital expenses.
Companies must also handle long-term finance requirements. Significant capital is often required to improve industrial facilities or acquire new buildings or plants.
Examine your current sources of working capital
A review of the company’s existing access to different financing sources, such as accounts receivable, lines of credit, current and investment accounts, and inventory, should be conducted. Check to see whether those sources are sufficient to satisfy your strategic goals.
- Consider several scenarios and how your company may handle them.
Conduct an assessment to identify the opportunities and challenges for future growth. Market trends and the state of the industry and economy are critical to keeping an eye on.
To find out how well your company would do in the event of a crisis, perform a scenario and shock analysis once you’ve identified the risks and opportunities.
Because of an outside event, like a lock down, would the company still be able to pay its employees and suppliers?
- Improve the receivables process.
If you want to minimize any delays in your accounts receivable, go digital and implement online or electronic payment solutions for your goods or services. It is important to keep track of when your clients owe you money and send them payment reminders on time by keeping an accurate debtor ledger.
- Debtors must be managed effectively.
Reduce your liquidity strain by negotiating with your suppliers for staggered huge cash payments, if any. Try to negotiate better terms with your suppliers, such as extended payment terms.
Credit checks should be more stringent, and people who don’t pay their bills on time should be pursued more aggressively through an efficient credit control process.
- Short-term business loans
You can also consider of availing of an unsecured business loan from leading lenders. It is a quick and hassle-free solution for funding your working capital requirements. One of the leading NBFCs, Bajaj Finserv, offers high-value unsecured funds with minimal documents and simple eligibility.
This NBFC also provides pre-approved offers on various financial products such as personal loans, home loans, business loans, etc. This personalized deal help in expediting the loan processing, making it hassle-free for you.
