Ask any small business owner and they will regale you with the challenges of making ends meet. Most of the time it feels like there is never enough money to go around.
Either the business is growing too fast and they can’t keep up with investment needs or the business is going through a rough patch and sales are not enough to cover expenses.
Having someone on your team who can help stretch every penny a little bit further is an invaluable asset.
With that in mind, let’s take a quick look at some insider tips to help you get the most out of your working capital. All of these ideas come from experienced CFOs, most of whom are working with small businesses.
#1 Get Everyone Involved
Everyone has a role to play in managing working capital.
It could be someone on the front lines can help to reduce waste in the certain process (wasted materials and supplies cost money) or someone who finds a less expensive, but higher quality, alternative for a key material.
It all starts with educating everyone about the costs and then empowering them to make a difference. Some simple tools include KPIs (Key Performance Indicators) in areas where everyone can see them.
If you are more profitable, then you will have more money not only to reinvest back into the business but also to increase salaries or hire more people. Everyone wants to be part of a winning team and this is an easy way to start.
#2 Get Creative
Bank financing used to be the only option for small businesses.
However, times have changed and business owners must adjust their financing strategies as well. The reality is that most banks are no longer geared up to work with businesses under a certain size.
However, successful small business owners are quickly developing relationships with alternative financiers.
These include working capital lenders who understand the needs of small businesses and who know how to get them financed, fast.
Some of these packages include rolling lines of credit which are repaid based on sales volumes, not a predetermined schedule.
#3 Pay Your Suppliers
It might sound counter-intuitive, but one of the best ways to get agreeable credit terms from your suppliers is to pay them on time. This is especially true for your most vital suppliers.
If you pay them on time, then they are more likely to work with you to create a payment plan which makes sense for everyone.
One of the best way to make sure this happens is to set up a simplified payment tracking system. Supplier finance can be a really useful working capital optimization tool.
But it all starts with creating an environment which is conducive to getting the best possible terms. This means paying on time.
#4 Beware Hidden Expenses
Out of sight, out of mind does not work when you are trying to keep a small business afloat. Even when times are good, the little leakages really add up. To fight this, you need to make expenses visible.
This starts with having clear rules for all line items. Also, beware of the Miscellaneous Expenses.
Whilst there may be a legitimate reason for placing an expense in this category, it should not be a regular occurrence. If you do find yourself entering numerous Miscellaneous Expenses, then you should stop and ask why it is happening.
If there is a clear reason, then maybe you need to create a new account for these expenses.
The truth is that there is no shortcut to getting the most out of your working capital. These four tips are just the beginning.
Other insider tips include better managing inventory and even knowing when to use contractors over employees.
What ties these tips together is that they are relatively easy to execute, so give them a try and find out how you can make your working capital work for you.
So what are your thoughts, what are you doing to bring working capital to your business when you need it? Feel free to share your thoughts, and comments below.