Working Capital Management
Working Capital is a quantity which simply tells about a company's financial status and investments though only for a short term. It is generally related to liquid assets such as cash, accounts receivable and payable, inventories, debts and such more things. To manage a business and smooth working of a company, an Entrepreneur needs to have adequate capital. This capital can only come from the proper management of company's assets and liabilities. For this maintenance, what a company needs is a working capital management. Many companies have already adopted and are implementing this management. Common sense is enough to tell us how important it is to manage our cash if we do not want to face any kind of financial crisis which is enough to deteriorate a company's position or worst to completely shut it down. Startups especially can generate a lot of capital (mostly funds) through working capital management, a smart one at that.
Described below is how you can do working capital management and raise funds.
Managing a company's short-term liabilities and short-term assets is what makes a smart working capital management. It ensures that company has sufficient capital to proceed and can cover every short term expenses.
When you read about managing working capital, you need to keep in mind that you can not only take care of the assets but also the liabilities. You can manage them since both of them are interrelated. Firstly, talking about company's assets;
Company's assets can be mainly divided into two slots one being inventories and other being accounts receivables. While inventories give you an extra stock of your services and goods, it may help you in a time of high demand and any technical fault in the company. It is basically the not-sold-out products, though raw materials and under-production material are also included in it. These products can be considered liquid assets and hence can add a lot to your working capital; therefore they should be carefully handled. Smart storage and moving will be one of the most important factors. Keeping Inventories for a long time should be avoided, since longer storage may deteriorate the quality of the product. Then comes accounts receivable. They are mainly the amount you need to receive from customers or debtors. To maintain a smooth working capital this capital should be collected soon. A thirty-day term is usually provided to debtors in order to clear all of their debts; an invoice system is also introduced in many companies. Fast cash will allow more exposure to new technology.
Talking about company's liabilities; you need to make sure that whatever debt you are entitled to or whatever creditors you have to pay is done on time, this can be easily done when you have a smooth accounts receivable payments. So, you can say that they are interrelated, though, a certain margin is always kept to avoid any kind of circumstances, they still are highly interconnected as can be seen in the flowchart also.
This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST Software, GST Return Filing, GST Registration, Section 8 Company Registration, Nidhi Company Registration, IEC Registration, Fssai License, File ITR Online.
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