Preface: Monitoring your business from an analytical vantage point, results in greater awareness of financial performance trends. The larger the business venture, the more financial expertise required. To quote Kevin Harrington, “People must be realistic in evaluating their business.” Realistic, in the sense of working capital tools, whether you agree or disagree, seems to be that absent working capital there is zero liquidity.
Working Capital Tools for Successful Business Performance
Credit: Donald J. Sauder, CPA
Working capital and sparkling water have shared a value. Too few realize how precious it truly is. Effective management of working capital and the effective management of operating capital and the cash flow cycle is always required for successful business performance. Adequate working capital is your businesses sparkling well.
Many entrepreneurs that habitually worry about managing their business ventures while applying skip planing financial metrics, would be advised to immediately develop effective working capital systems to guarantee long-term business success. That latitude of working capital techniques can vary from business to business, and entrepreneur to entrepreneur; and the forward supervision of entrepreneurial working capital for a venture is a continuous process.
Inadequate working capital usually results in a unwieldly web of financials perplexities in business. Those webs can range from shifts in vendor’s trust and credit ratings or flooded employee morale, to forfeited profit opportunity. Vendor credit trust is often essential and vital for a consistent supply of products or services to conduct vibrant daily business operations, e.g. if you lose credit with vendors, or your credit rating is impacted negatively, it is not an easy task to get the wagon backup to speed.
Should employee morale be flooded from delayed payroll checks, a high-tension work environment , or from vendor communication stresses, the intangible assets with substantial value from years of invested expertise and experience with your business products, processes, and customers, can evaporate too quickly, e.g. employees can depart. Forfeited profit opportunity occurs when neglected chances to obtain purchase discounts or incurring late payment fees lead to increased costs.
Optimal working capital permits you to keep sufficient levels of liquidity in the business at all times, fueling operational costs of say payroll or general expenses, or balance sheet developments with the financing of inventory and account receivable expansion.
Often busy entrepreneurs are inexperienced in effective working capital management managed with financial ratios and key performance indicators, or additionally, thoroughly understanding the analytical tools to measure and manage liquidity. You need to keep tabs on the complete sphere of financial data in your business. Financial resource monitoring requires advisedly a financial expert, e.g. a chief financial officer, or an accountant.
Monitoring your business from an analytical vantage point, results in greater awareness of financial performance trends. The larger the business venture, the more financial expertise required. To quote Kevin Harrington, “People must be realistic in evaluating their business.” Realistic, in the sense of working capital tools, whether you agree or disagree, seems to be that absent working capital there is zero liquidity.
Some goals of working capital management are 1) manage and balance resources and liquidity to optimize a business’s financial position 2) guide business expansion at a conservatively risk sustainable pace, and 3) monitor operational cash flows.