Every business, especially small and medium ones, need to have enough money to set up and maintain their business, including things like paying employees, taxes etc. As well as just getting by, SMEs need enough capital to be able to thrive and grow, so keep reading for a few ways to improve your working capital.
1. Set cash flow KPIs
One of the main reasons that a lot of small businesses and start-ups fail is because of a poor cash flow. When businesses don’t have enough money coming in to be able to expand, they can often find themselves in a situation where it’s difficult for them to be able to cover the basic essentials of their business.
One way to improve working capital is to ensure that cash flow is being monitored and stays on track by setting KPIs. This will highlight any potential areas for improvement and where things are going well. The easiest way to ensure this is done consistently is to give one of your team members the job of doing this every week or month.
2. Limit expenses
Working capital is often negatively impacted when you simply spend too much. The easiest way to remedy this is to make cuts in the right places to ensure that your finances are kept on track. Negotiating with suppliers when buying supplies is a good way of better managing your finances.
If you want to improve working capital in your SME, consider reviewing how your expenses are being spent. More than likely you’ll find out that a lot of your money is being wasted on expenses that could easily be cut. By following this advice you should see your working capital increase.
3. Offer payment incentives
While spending more money might not seem like the best way to improve your working capital, it can be an effective way of saving money in the long run. Something as simple as providing the incentive that customers can save one percent on their invoices if they pay within a certain number of days can actually deliver more profits for working capital than the issues that later payments can create.
The same applies for offering more than one option for payment. A lot of companies have to pay fees for accepting credit cards, but it can ensure that your business receives the money faster, something that is especially useful for improving the working capital for your SME. Xelix can automate accounts and help you to keep track of your capital more effectively.
4. Manage your inventory
Although it may seem like a positive thing to do, don’t overstock your inventory. Instead of saving you money, it’s likely that these products are not performing and are just taking up space. Ensure that products are sold as soon as they can be and are not just sitting in a warehouse.
Still choose vendors who offer discounts because this will significantly help your finances. Maintaining a good relationship with them will help, especially during times when you need a little more tolerance or could do with an extra discount.
With these ideas in mind, you will be able to make more informed decisions on your spending, and thus improve working capital in your SME.
