Working Capital - A Tool To Judge Your Company’s Efficiency

The most repeated maxim amongst financial managers is “Cash is the lifeblood of business”. A business owner always look that his cash flow to business is smooth and use it for generating profit. When a business is running smoothly and taking in profit, then it will undoubtedly have cash surpluses. If your business does not have cash surplus, expect to go out of the business.
Actually, cash earnings are worth more than inventory to many businesses and their financial managers try to maximize it whenever and wherever it is possible. Here are a few ways you can improve your business through gaining working capital:

1. Cash Flow forecasting is what working capital management is all about. Your forecast should include factors like fluctuating market cycles, unforeseen events, loss of customers and your competitor’s strategy. Also, unforeseen demands and its effect on your business all need to be factored in.

2. There is nothing wrong with putting together a contingency plans just in case of unexpected events. It’s true that market leaders manage uncertainty much better than in years past, but you really should have risk management procedures for your company as insurance. Base it on both an objective and realistic view of how working capital is used in your business.

3. Try to address your working capital on a corporate-wide basis. The cash you generate at one business is often better used at another provided one is more profitable than another. However, for this type of internal business exchange to work you must have certain practices already in place. Your business should have efficient banking channels and an open line of communication between production and billing as well as an internal system to move cash to and from the locations.

4. You need proper procedures in place to deal with dispute management. You want your customers to basically go away during disputes and free up that locked up cash. Not only that but it can also improve your overall customer service by using that energy towards sales, order entry, and cash collection. You’ll be pleasantly surprised how much of an increase you’ll see in your business’s efficiency on top of a reduction in operating costs.

5. Collaborating with your customers instead of being focused only on own operations will also yield good results. If feasible, helping them to plan their inventory requirements efficiently to match your production with their consumption will help reduce inventory levels. This can be done with suppliers also.

Important yardstick to measure your company’s operational and financial efficiency is your working capital management. This aspect must form part of the company’s strategic and operational thinking. You should constantly make efforts to improve your working capital position. This will yield greater efficiencies and improve customer satisfaction.