Capital, a most critical business resource.

Capitalise your business correctly or suffer the consequences. 

Positive working capital is required to ensure a business can continue its operations and has sufficient funds to satisfy maturing short-term debt and impending operational expenses. Working capital management involves managing inventories, accounts receivable, accounts payable, and cash.

Disposal of non-performing assets can also release cash. A business can be endowed with assets and make a lot of profit, but be short of liquidity if its assets cannot readily be converted into cash.  

Whether you’ve been in business for one week or twenty years, an infusion of new capital is always welcome. But what is best for your business? Become more financially savvy. There are so many factors to consider, from the development stage of your business to what type of finance you need to consider and knowing what to do and how to do it can be pretty overwhelming.

Can you answer these questions?

Having the right capital to operate effectively and grow your business is arguably one of your most important responsibilities as a manager or business owner.

Failure to understand how to capitalise on a business can quickly put it at risk. It is critically important you understand the intent and implications of the following questions:

• If your business is not adequately capitalised, why isn’t it?
• Can you properly capitalise your business and how long it will take?
• Do you know how to determine current and future capital requirements?
• Do you understand what ‘working capital’ means and its importance?
• Have you structured your capital to maximise cash flow?
• Have you ever had to manage and allocate funds in proper proportion?
• What are the various sources of capital available to you?
• Did you know you can grow or sell yourself out of business?
• What additional capital is required to stay in business beyond what was necessary to start?
• Do you understand how debt can get you into trouble?
• Borrowing from family and friends can destroy relationships; are you avoiding the temptation?
• What differences and what is the impact of ‘investment capital’; ‘retained earnings’ and ‘borrowed funds’ on the business?

Being well-managed can be beneficial.

Two things about borrowed money should not be overlooked. Unlike investment capital or retained earnings, debt accrues interest to the lender and must be serviced. Repayments can create an incremental drain on your business’s liquidity.

Your organisation has to be able to generate profitability and subsequent cash flow to make these repayments. Do you understand that the more successful you are and the more you grow, the more capital you need?

Determine your business’s capital requirements and how you can improve your capitalisation.

Quotable quotes

“Life is a process of accumulation. We either accumulate the debt or the value, the regret or the equity”. Jim Rohn

“The surest way to ruin a man who does not know how to handle money is to give him some”. George Bernard Shaw