If you are a businessman or an entrepreneur, you might already know the importance of working capital. Working capital, called the lifeblood of a business, ensures that the functioning of your organization is being carried out smoothly. With adequate working capital, you can manage the short-term expenses and day-to-day operations without relying on the collection of the revenue or sales proceeds. However, apart from facilitating smooth functioning, working capital also helps maintain the agility of the business, which is a crucial task for the success of your organization.

 

In the following article, you can learn a few ways to ensure that the working capital maintains the agility of the business.

 

  • Take note of your income and expenses

Keeping a record of your income and expenses is crucial to maintaining sufficient working capital for your business. You must prepare a monthly budget to know how much you need and if you have the required funds. Experts say that you must follow bookkeeping diligently to take note of your expenses made and income earned. This will help you identify the gaps and manage them before it impacts your business adversely. 

 

  • Encourage timely payments

Do not wait for the last of the month to balance the payments. Make timely payments to the creditors and encourage the same from your debtors. You can keep the customers and clients happy by giving them a credit period to generate sales. However, you must ensure that you do not delay collecting payments for too long. You can encourage early payments by giving discounts to ensure balanced cash flow in the business.

 

  • Avoid buying fixed assets with working capital

Do not tie your working capital loan funds in purchasing fixed assets. It can exhaust all your funds and restrict your cash flow. Similarly, avoid paying off your debts with the working capital funds. Instead, you can refinance existing fixed assets. Alternatively, you can also borrow fixed assets as per your need. You can convert the assets into cash whenever necessary and use the working capital to expand the business.

 

  • Do not pile up stock

Avoid stockpiling. Piling up your stock makes your business less competitive and decreases liquidity. Typically, your working capital is hampered when you pile up stock. Instead, chalk out a plan so that you have enough stock to deliver and not more. It will save you storage costs too.

 

  • Expand your revenue graph

To increase working capital, you must work towards increasing sales. Expand your business and explore more business opportunities for the same. Even if you start small, ensure that the goods are sold and you generate revenue. You can also invest in the marketing channels to ensure that more sales are generated, and you get enough revenue.

 

Working capital can significantly impact your business. A sufficient amount of working capital can make your business stay agile, competitive and ensure profits. These tips can help you maintain the perfect amount of working capital in your business. If not, never shy away from availing a working capital loan to keep your business going.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.