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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Dreaming of Your Own Tech Startup?

4 Steps to Move You Towards Success
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In the last few years, tech startups have become fast-growing businesses by improving lives with technology and have made their owners vast fortunes in the process. If you want to get in on the action by founding your own tech startup, it isn’t too late. Here are four steps you can take that will prime you for success as a cutting-edge tech entrepreneur.

Think of an Idea

At the core of every successful business is a basic good idea. However, the idea that makes you into a tech millionaire may not be quite what you imagine. In most cases, it’s a better idea to improve something that already exists, rather than inventing something entirely new. Completely new ideas can make you rich, but they are also less proven and more likely to fail than improvements on existing products or services.

Start Learning How to Make It Happen

Once you know what you want to do, it’s time to figure out how to do it. Depending on the nature of your idea, you may need to learn one or more computer programming languages or a new hardware system. Often, this will mean going back to school. This is especially true if your idea is hardware-based, in which case you’ll likely need an electrical engineering degree to bring it to fruition.

If you already have the skills and want to just jump into the startup process, you will want to surround yourself with people who will move your startup towards success. This means that you will need to gather people around you who have the experience and educational backgrounds that will get your business further.

Create a Basic Prototype

Once you’ve learned how to bring your idea to life, you’ll need to come up with a prototype version. This basic version doesn’t need to have full functionality, but rather needs to deliver proof of concept. Once you know that you can create whatever it is you want to, you can start pursuing more complete development.

Raise Funds for Development and Production

To bring your idea to market, you’ll likely need more money than you already have, which means securing a loan or finding investors. Taking on investment partners can be a great way to raise money, but it also means sharing your profits with a larger pool of people. A loan, on the other hand, means qualifying and paying interest that will eat into your profit margin. A good third way is seeking out a peer-to-peer loan, which usually will have a somewhat lower interest rate than a traditional bank loan.

The journey to creating your tech product or service will be a long and hard one, but these steps will give you the basic framework for getting from here to there. Once you have your startup successfully running, you’ll be happy that you went to the effort.

Cover Image Credit: Pexels

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3 Awkward Personnel Situations Every Business Might Face This Year

Personnel problems are some of the trickiest to deal with in the business world so be sure to plan ahead.
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Personnel problems are some of the trickiest to deal with in the business world. You’re not just dealing with numbers—you’re dealing with people and all the attendant emotions they bring with them. As your business year continues, you are likely to run into a few awkward personnel situations. Below are three that tend to impact businesses across the world.

Inter-Office Relationships

While television and movies make inter-office relationships look fantastic, they’re actually a headache for anyone who runs a business. If you’re lucky, the people involved will keep everything very low-key and you’ll never be any the wiser. If you’re not, you can expect some real personnel issues to crop up. The best way to deal with these problems is to be equitable and to follow any protocols you have in place to the letter. Don’t become involved with these relationships on a personal level and make sure to keep a level head when dealing with any of the resulting problems.

Bringing in a New Generation

There’s a good chance that you’ll be bringing in a new generation of workers this year, and that’s going to mean changing the way you do things. Despite the doom and gloom forecast by most of the media when it comes to dealing with millennials, you won’t have to completely upend your business in order to cater to these new hires. You will, however, have to adapt to workers just as they adapt to you.

Many millennials pursue postgraduate education if they can manage it while working at the same time. For example, a hospital may hire a young nurse with an associate’s degree in nursing who wants to pursue further education. That employee can take an ADN to MSN program at the same time as working. The availability of online education makes hiring millennials a possible investment for greater future returns.

Dealing with Major Shifts

One way or another, your personnel needs are likely to change this year. You might have to deal with the pain of letting some of your best employees go, watch as one of your managers moves on to greener pastures, or have to hire a number of new workers quickly in order to fill vacancies. You can’t expect this year to be the same as last year, so don’t rest comfortably just because things are going well now. Start looking at your staffing needs early so you can put contingency plans in place.

You might also have to make major changes in your operations based on your employee demographics. It’s obvious that each generation or background your employees come from can change the way you have to run things. It can be tempting to attempt a one-size-fits-all approach, but research on leadership through multigenerational differences suggests that you may be better off playing to the strengths of each demographic individually. If you can draw out the best of your employees with a unique, and even personal, approach, your business will inevitably thrive.

The next year might bring some real changes to your workforce. Be prepared to deal with relationships, new hires, and wildly changing circumstances as the year goes by. The more you prepare, the better you will be able to weather the storms that are likely to come your way.

Cover Image Credit: Pixabay

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