Working capital (WC) can be termed as the lifeline of a business, enabling it to fulfill its daily funding needs conveniently. During financial crises, business sustenance conveniently comes by with strategic working capital management.
Planned utilization of this fund can grow a business and run its operational activities smoothly. Also, working capital calculation from time to time helps assess an enterprise’s short and long-term health with precision.
- A survey covering 8,400+ businesses in India reveals that 38% of these entities are left with zero cash.
It typically signifies a lack of optimal liquidity in a business, which is a crucial component of working capital.
A better understanding of what is working capital can thus be gauged by identifying the funding used to pay day-to-day and short-term expenses in a business. A company’s financial situation also remains balanced when its working capital is adequately maintained. Further, identifying the use of working capital in various different ways can help plan and manage it strategically for maximized benefits to a business.
Different ways to use a working capital
There are countless ways of utilizing working capital in a business. Following are the top five ways to make the most of it.
- Empower your workforce with fresh talent
Team empowerment is an effective move towards enhancing your business competence. At some point, hiring new employees becomes crucial to strengthen the workforce and boost production in volume and quality.
Whatever the purpose be, this whole process of screening, interviewing, training and final hiring is financed by a company’s working capital.
It would thus be safe to say that working capital can make or break your small business. Before inviting for vacancies, ensure to conduct a working capital calculation to assess the funds needed. In case of insufficient operating capital, consider taking out a business loan of higher value.
- Keep your inventory up-to-date
Inventory is a liability for retail businesses. While you need to maintain a regular stock throughout the year, at times, you may need to overstock as well. Some instance requiring such restocking can be a busy season, a festive month, or when launching a new product.
You can use the working capital to purchase inventory and keep all shelves stocked up. This aids in catering to customer needs in time, thus, improving brand value.
Here, you can check out a few inventory management techniques that help save money.
- Make EMI payments for small debts
Most businesses carry numerous smaller debts which increase the monthly outflow towards repayment. Moreover, managing multiple creditors often challenges a company’s expansion and investment plans.
You can thus either make EMI payments regularly with working capital or seek a business loan of a high quantum to consolidate all smaller debts into a single one.
Here again, a precise working capital calculation becomes essential to know your monetary requirements and apply for credit accordingly.
- Invest in equipment and machinery output capacity enhancement
If you are concerned about market competition, you cannot rely on equipment that runs on older output capacities. Competing with enhanced capacity of manufacturing technology and engineering trends using the latest equipment additions for output enhancement thus becomes essential.
Working capital helps upgrade to such equipment or technology, thus, expanding your reach to potential markets. You can also decide between lease and purchase of new machinery if it is a manufacturing unit.
For any business, a working capital calculation is done based on the following formula, which shall help decide the amount of capital so invested for informed decision making:
Current Assets – Current Liabilities = Working Capital
- Cover marketing expenditures for brand exposure
Innovative advertising strategies using the most effective marketing channels create brand image among potential customers. You can thus enhance your business’ online presence, communicate directly with your customers, and reach out to the target audience easily. All you need is a good investment after you have made the required working capital calculation. You can thus finance this expense with a business loan from lenders like Bajaj Finserv at competitive rates.
Now that you know what is working capital and its uses, you can avail business financing to cover big-ticket requirements and preserve this funding for emergency purposes or regular overhead expenses. Lending institutions offer credit with convenient repayment tenures of up to 60 months, quick loan disbursal, and instant approval for convenient financing.
The lender also brings tailored pre-approved offers on a host of financial products like personal loans, business loans, credit cards, etc. Such schemes not only make the process to avail credit less complicated but also more time-saving. To check your pre-approved offer instantly, submit a few essential details online.