As defined by the Oxford Dictionary, working capital is “the capital of a business which is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities.” This is important for businesses because a positive working capital ensures the company can continue its operations, meaning short-term debt and future operational expenses are covered. Working capital includes inventory management, accounts receivable and payable and cash. Below are seven proven ways working capital grows your business.
- New Equipment
With working capital, you have an opportunity to update and purchase new equipment for your business. Depending on your type of business, you may need to finance the new equipment, but you’ll be able to put down a down payment to lessen the payment amount. For example, construction would need to finance new equipment due to the cost of forklifts and bulldozers. When you can add new equipment to your inventory, you are able to actively compete with your competition, possibly surpassing them. This is possible when you purchase a new software that is faster and customized to your business. It will work how it’s supposed to, and it will help ease the tasks of your staff. When equipment and software are working at their prime, your business will be working at its optimum.
Another way to grow your business is with working capital financing. If you don’t have enough working capital built up to maintain your business, you will need to ponder about an external financing source. This can be done with accounts receivable financing or a short-term business loan. However, if you do have enough to cover costs, but are looking to expand or are offered an opportunity that will help your business succeed, you may also take advantage of working capital financing. A business line of credit is a great option as you only pay interest on the amount actually borrowed and not the full amount offered. Financing allows you to have the same opportunities as other businesses that don’t need to finance.
- Marketing Tools
One department that is often overlooked is the marketing department. With working capital, you can increase the budget for marketing, with the goal of creating more working capital. This can be done using Google AdWords, media buying and social media advertising. Maybe the marketing department has a well-balanced budget, but it’s the software that is lacking. Marketing software to boost your company’s brand and increase traffic is Hootsuite and email marketing platforms. Investing in marketing is essentially something that should pay for itself and then some, adding more to your working capital in the long run.
Employees can make or break a company. How they’re treated will eventually trickle down to customers. Happy employees will treat customers rightly, boosting the customer experience. However, if employees are not given good benefits, work/life balance or good pay, this will show. They may not work as hard as they should, and they may not be as friendly as they should to customers. Looking into the working capital you have on hand; you may be able to reevaluate employee benefits and incorporate raises to exceptional performing employees. When your employees are happy, you’ll be able to keep the best talent in workers and maintain excellent customer service.
Building brand awareness is a key factor in growing a successful business. The more you increase your brand awareness; you can increase your new business prospects. Getting out into the community allows for this to happen. Great options for community involvement are sponsoring events, hosting fundraisers, tradeshows and networking. You can use your working capital to invest in these community events. While some of these options could be pricey, some could just cost your time and some marketing pamphlets. All can increase new business prospects and add to your working capital.
- Innovate Products
You may want to use some working capital to invest in your research and development department. If you specialize in selling products, this is an opportunity to reexamine how to improve what you offer. This is one way to not only gain new customers but retain existing customers. Reinventing your company’s offering can also help boost the product or service ranking in your niche market.
- Extend Market Reach
The best way to get your company introduced to new markets is to extend your market reach. One way to do this is to open stores in new locations to sell your product or service. Brick and Mortar stores are not your only option though. You can also invest in a virtual store by creating a website that can withstand your customers’ online purchasing needs. Utilizing working capital for this type of investment allows you to grow your business in size and capital.
- The Final Word
Working capital is important because it is the amount of money a company has left over from all operational costs. Positive working capital allows a company to successfully pay all upcoming debts and costs. This is also an opportunity to invest in different departments of the company to grow your business, ultimately adding back to your working capital long term.