The need for working capital is a key indicator of short-term financing for your business. Underestimated or poorly controlled during development and growth, it can lead to a breakdown of cash.

The working capital, what is it?

This is the amount of cash needed to run your business. “The need for working capital or working capital, expresses the difference between input and output of money a company,responsible division’s support contractors within the Agency for start-ups.A trader has to buy his goods, stockpiling, pay its employees before marketing their products. “Since the launch of your business,you must provide the resources needed to finance your working capital.many leaders underestimate, being created, their need for working capital, and the many funds that will perform . Whether it be vehicles, computers or machines, or with the first rent deposit and work arrangements.WCR should not be overlooked in times of growth. Careful monitoring makes it possible to observe an unexpected increase its working capital and take appropriate action.

working-capital

How to calculate your working capital?

The need for working capital is calculated in the development of your business plan.To evaluate (see box), it is necessary to quantify the stocks of raw materials required of your company at any time.Also recognizes your outstanding customer – this is the amount of your debts pending settlement – and the amount of “supplier credits” assessed taxes. It corresponds to the payment terms granted by suppliers. After these steps, you can calculate your working capital. You will then see what your working capital is negative, that is to say that your business generates every month in cash, or your working capital is positive, then you have a need for cash to finance your business. In the latter case, it is imperative to find a solution. “A positive working capital is not synonymous with poor management of the company.This situation occurs in the vast majority of small businesses, namely those that must pay their suppliers,tax and social security, even before he could collect the proceeds of their sales,Generally, banks agree to finance the working capital of a company. But on your side, be careful to focus on bonds with 3 or 4%.Reasonable rates compared to some found in the neighborhood of 10 to 12% or more. If it seems important to fund your working capital needs, we must also think about reducing it to improve your cash flow.

How to reduce its working capital?

Thus, the higher your working capital, the smaller your company is able to grow safely. Moreover, there are several levers that you can play. First parameter: the stock client. “We must focus on payers and implement follow-up actions to bring the customers to pay their debts more quickly. Do not hesitate to wake up by mail or phone,

Ask for longer payment terms with your suppliers. This can be done by putting them in competition in renegotiating your contracts.You can also limit your stock. Optimization is to achieve a level of supply as low as possible to fund only the minimum necessary for the smooth running of your business. Pay also attention to your stocks of old products. If they do not generate significant sales, it is best to part ways, even to cut prices.