Working capital requires understanding.

Fail to understand working capital at your peril.

Operational efficiencies and better working capital management will drive profitability, facilitate growth, and reduce risk while improving sustainability. Improvements provide a genuine way to overcome your cash flow strain and sleepless nights. A business without working capital is like a car without petrol. It doesn’t matter how good the care is; it’s not going anywhere.

You must generate enough income to meet your operating expenses and service any debt while allowing for your desired growth. Lack of cash is the primary reason why you need investors. You may have plenty of assets and don’t think working capital is essential. This isn’t very clear to many people and requires understanding.

Tracking the numbers is necessary to attract good investors and ensure financial viability. Keeping your business financially sound requires paying close attention to the economic data you generate daily.

Working capital is a business health indicator.

Working capital is a key indicator of a business’s health and capacity to pay its bills as they fall due. Potential investors evaluate your Working Capital Ratio to determine how much of your assets are liquid and how much are not. This is the day-to-day money used to run the business and pay the bills.

The higher the percentage of your assets used as working capital, the more liquid your business is. The more you have, the better you can respond to changing business conditions. It also gives you peace of mind knowing you can pay your bills on time, every time.

Investors will check your working capital to determine whether you can survive short—and longer-term revenue slumps. Many lenders require businesses to meet a minimum standard to qualify for loans and maintain the capacity to repay them.

Substantial trade-offs exist between cash flow management, customer service, costs, and risks. To optimise your overall management performance, you’ll need to recognise and understand these trade-offs. Implement continuous improvement programs that take these factors into account. This will require a holistic approach across the various business functions, including customer and supplier value drivers. 

There are many benefits to becoming financially savvy.

Financially savvy people have agility. You think you should do everything you can to become financially savvy and improve your agility. Sure, you might have a good accountant or finance broker, but you need to understand the ins and outs of money as it affects your organisation. Failure to do so leaves you vulnerable and likely to have failures and miss opportunities.

Being financially savvy allows you to make good decisions about money, particularly during a difficult time. It also allows you to be quick on your feet and take up opportunities promptly. No more procrastination and losing out on deals and opportunities.

You may not have started your business to become a financial wiz. However, this should not be an excuse for not taking the time to understand the basic financial matters associated with an enterprise:

Quotable quotes.

“The more capital you put into the business, the faster you’ll be able to grow and the more profitable your business can become”. Peter Sergeant

“Academic qualifications are important, and so is financial education. They’re both important, and schools are forgetting one of them”. Robert Kiyosaki