6 Reasons Working Capital is the Blood and Nerve Center of a Business

6 Reasons Working Capital is the Blood and Nerve Center of a Business

Why working Capital is most Important Aspect of Every Business?
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Working capital is simply the amount of money that a business has to operate with. It is the current assets minus the current liabilities. Current assets include cash on hand, inventory and accounts receivable. Liabilities include accounts and notes payable, expenses, and current loan/debt payments.

Working capital represents the liquidity of a company, a measure of its value, efficiency or stability (depending on how you want to look at it).

Working capital is important primarily because it is the money that keeps a business running. With little working capital, a company won’t . . . work. Here are some of the ways that working capital is the lifeblood of a business.

1. Strengthening Solvency

Solvency is the measure of how much greater your assets are than your liabilities; it tells you how easily you can pay off your debts. Having sufficient working capital is the first and best way to pay off short-term liabilities. When you are able to easily pay salaries, equipment rentals, and other immediate costs, then your company can run more smoothly.

2. Moving Forward

One of the most effective ways to propel your business forward is with the use of working capital. When you have the right amount of disposable working capital, you can easily pay off any debts or costs and focus on investing for future expansion. Negative working capital (i.e. a situation where your liabilities are greater than your assets) means that you do not have the capacity to expand.

3. Developing Relationships

When a business is able to make all its necessary payments in a timely manner, it breeds trust and goodwill among its employees, with its vendors and other external agents. With sufficient working capital, a business never has to worry about running afoul of someone to whom it owes money.

4. Improving Health

Working capital can tell you how healthy your company currently is. The current liquidity of a business, also the net working capital, is one of the most important determinants of its health. Liquidity tells investors how easily a company’s assets can be converted into cash. As the amount of money available for day-to-day operations, working capital is intimately tied to liquidity and how easily work can get done in the business.

5. Getting Loans

Every business owner hopes to be able to expand his or her business. In cases where large expansions are planned, a loan may have to be taken out. When a business has good solvency and credit, it is more likely to be approved for a loan. Good working capital, therefore, helps you not only expand using your own resources but also helps you find external funding for expansion.

6. Handling Crises

Any business is likely to face a crisis at some time in its life. How these crises are handled depend largely on the working capital available to the business. Firms with good working capital are able to absorb blows to their revenue stream and keep moving forward.

Make Working Capital Work for You

Working capital is either expressed as a money value (assets minus liabilities) or as a ratio (assets over liabilities). Any business should aim for at least a working capital ratio of 1.2. Whether your company is just getting off the ground or has been operating for decades, managing working capital is key to its profitability.

Managing working capital is an important skill to have. As we have seen, a company’s working capital is one of the most important pieces of information to know regarding its current health and future profitability. Managers who understand working capital and how to use it stand poised to leverage its many benefits to increasing profits.

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15 Things That Need To Be Invented Now

The next round of needed life hacks.
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For Millennials, life is constantly being made easier. Compared to our parents' generation, almost everything about the way we run our day-to-day lives has been modified for speed, simplicity, and convenience. You want a cup of coffee? Here, have an instant cup of hot coffee at the push of a button! Missing your friend across the country? Call them with your smartphone, see them instantly! You can Google virtually any question, there is an app for every want and need; each step of the way Millennials are working to make things easier. I have a few ideas to contribute:

1. Extending USB cord: There must be USB plug that can stretch. The way a dogs leash will release more cord as it is pulled on, there needs to be a cord that can stretch as I roll over in bed without pulling the plug out of the wall. The struggle of being attached to a wall is too great.

2. Closet Organizer App: Some mornings you wake up and wonder how it was ever possible that you once found a decent looking outfit in your closet. Other days the prospect of having to dress yourself is just too much. There needs to be an app that can record what is in a closet and make an outfit, for any event, at the ready, similar to what Cher Horowitz has in Clueless.

3. Hangover Curing Drink: Stronger than Gatorade, better for you than pumping your stomach with Advil and water, and putting an end to the old "flu" excuse at work. A foolproof drink that can give everyone what they need to get up, pick their dignity off the floor, and soldier on. You all may thank me later.

4. Rent-A-Boyfriend: Have you ever had one of those weeks where you just need someone to bring you chocolate cake in bed and tell you you're beautiful? Maybe you really can't figure out how to build all the new Ikea furniture for your apartment and you are incapable of rounding up a guy friend to do it. Either way, the ability to rent a boyfriend on a needed basis would be quite handy. Think of all the stuff they could do for you, then you get to return them when you're done! It's like a dream.

5. Parking Tracker: What is it about parking garages that suddenly make everyone's memory go blank? Whatever the reason for the world's inability to keep track of their cars once stationary, it needs to be resolved. Too many minutes are lost aimlessly wandering the garage carrying heavy shopping bags. Please, someone invent a tracking app for your car, so that you can remember exactly where you parked and follow the map directly to it.

6. Forever-Hot Coffee Mug: I'm not sure what type of wizardry would be required to create a coffee mug that can abolish the awful lukewarm state that coffee turns into after such a short period of time, but someone needs to discover it. Long nights of studying and hours-long brunches of switching between the mimosa and the sweet nectar of the Gods will be forever changed by never again fearing cool coffee.

7. Teleportation Pad: The year is 2015; I was promised a flying car. In lieu of the flying car -- I am willing to accept teleportation pads. Think about travel becoming as easy as "stand here and click that button." Imagine not having to bother putting on a bra to go from your apartment to your friend's apartment for wine night! This could be revolutionary.

8. Sassy Siri: Every girl could use someone to help them come up with the perfect come back in a pinch, and who better than Siri! With her constantly involved in your conversations, it would be easy to just ask Siri for a little sass-assistance the next time your best frenemy mocks your highlights.

9. Compliment Earrings: If you have never seen Aquamarine, go rent it now. For those who recall, the star fish earrings were "notorious suck ups" to the girls who wore them. Imagine going through a tough day, when unexpectedly you are given a compliment! Talk about a great mid-day pick up.

10. Food Printer: My stalking of Pinterest food pages has progressed from a mild addiction to a full blown problem; I always find I want the things I see in the pictures immediately. I want to be able to hit print on one of the pictures and have those lemon-blueberry iced cupcakes in my kitchen right then.

11. Necklace De-Tangler: Ladies across the country lose thousands of necklaces to tangled knots. Chains break, two beautiful separates become one big mess, and before you know it your jewelry box is empty! There must be a machine where one could drop their knotted necklaces and have them come out the other side in perfect condition.

12. Hot Slippers: On a cold Monday morning when walking around the kitchen, debating which is worse, waking up or being awake, it would be nice to be comfortable. Nice pajamas are all well and good, but a fuzzy pair of slippers that can become warm? That is the dream. There is no morning too grey or hangover too intense that would not be cured with these slippers.

13. Calorie Rewind: There needs to be a way to take back that entire pepperoni pizza you ate last night. Whether you were not in the proper state of mind to be making that decision, or even if it was emotional turmoil over exams; it shouldn't count. Perhaps the next big thing in weightloss is a pill that allows you to take back a meal. A way to go back in time and undo that embarrassing trip to the doughnut shop down the road in favor of a more healthy alternative? Not a bad idea.

14. Sleepy-Time Studying: How awesome would it be if you could fall asleep with headphones in and wake up knowing an entire textbook? Humans spend an average of 26 years sleeping-- there should be a way to put that time to good use. A way to absorb the information while you sleep should be the next big invention. It would be the perfect cure to the all nighter!

15. Decision Making App: Desperately struggling to pick where to go for dinner? Unable to decide whether to go out or stay in? Unsure of whether it's a day for heels or for flats? These are the everyday questions faced by thousands of Millennials. We need to find a cure for the indecisiveness. An app that takes the guess work out of meaningless day to day questions such as, "Do I want a grande or a vent?" (Or I suppose you could just flip a coin...)

Bonus 16. Articles That Write Themselves: I wish I had a magic box I could give an idea to and it would instantly put print out the article I am trying to write.

Cover Image Credit: giphy.com

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5 Things That ALL Millennials Get Wrong About Investing

Millennials tend to save more conservatively and our aversion to taking risks may prevent us from reaching our full wealth potential.

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Millennials get a bad rap when it comes to making personal finance decisions. But while we may enjoy our avocado toast, surprisingly enough, we're also saving more money than previous generations. We also tend to save more conservatively and our aversion to taking risks may prevent us from reaching our full wealth potential.

Here's what millennials get right about their money and where room for improvement exists.

1. We wait too long to start

Even though experts have long recommended starting an investment portfolio as young as possible, many millennials hesitate when it comes to opening their own trading accounts. This results in missing out on the opportunity to sit back and watch our money grow through compound interest.

Many of us utilize savings accounts but relying solely upon these avenues prevents us from letting our money do the heavy lifting for us. Most savings accounts pay relatively little in terms of interest, often less than 1%. Throwing all our money into savings accounts earns us mere pennies for each $100 we invest.

Instead, millennials need to harness the power of the stock market which provides far more in terms of long-term financial gains.

2. We overvalue cash

Because we came of age during an era of financial crisis, millennials shy away from the stock market. But this hesitancy costs us big time in terms of future economic freedom.

No reward comes without risk, and by far the easiest way to reap huge financial gains remains investing in high-yield growth stocks. The best time to take any financial risk occurs before age 35, before the expenses related to home ownership and child-rearing require more financial conservancy.

Stashing away a small amount of cash under our mattresses for emergencies can't hurt, but wasting valuable time simply saving for a rainy day impacts our long-term wealth. If you're hesitant about investing on your own, hire a qualified financial advisor to manage your investment portfolio.

3. We miss out on tax deductions

Failing to diversify investments means missing out on valuable deductions come tax time. While interest from savings accounts gets taxed at the same rate as ordinary income, the capital gains tax rate remains substantially lower.

In addition, certain types of investments, such as investments in oil and gas partnerships, allow taxpayers to take advantage of government subsidies to offset any potential risks to capital.

Millennials do themselves a disservice by failing to seize these opportunities, as experts predict no decrease in demand for these resources over the next few years.

Even making an additional contribution to a 401k or other qualified retirement account can offset tax liability but far too few of us take advantage of this potential tax-buster!

4. We don't do enough diversifying 

Even though one out of every six millennials possesses over $100,000 in assets, few take the time to adequately diversify their investment portfolio. A strong portfolio consists of a mix of high-risk, high-yield stocks, steady, reliable blue-chip stocks, bonds and other forms of property.

Failing to diversify costs us big time in the long term. No matter how much cash we stash away today, inflation remains a powerful force that decreases the value of each dollar saved over the life of our savings.

The only way to account for price increases due to inflation remains investing in the stock market, where gains have a reasonable expectation of keeping pace.

5. We ignore history

Many millennials, myself included, tend to panic when we hear news stories of the stock market rising and falling at breakneck speeds. Indeed, current fluctuations in the Dow tempt many of us to pull out of riskier investments in exchange for less risky vehicles such as bonds.

Savvy millennials, though, resist the temptation to abandon ship.

Historically, investments in the stock market pay off over the long term. Market ups and downs tend to balance out over time.

Despite saving more than ever, we millennials need to educate ourselves about the importance of building a diversified investment portfolio.

Being willing to take greater risks while we're young will lead to a wealthier, more financially free retirement down the line. We millennials must learn to make our money work for us!

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