How To Manage Your Business Working Capital

Manage Your Business Working Capital

Managing your business’ working capital will help you prevent cash flow problems, improve your assets’ liquidity, and increase your return of investment, among many things. Properly done, it will spur your company’s growth, leading to inevitable success.

However, business working capital management is easier said than done. There is a lot of information to take into consideration. You might not know where to start! So, to make your life easier,

Here Are Steps That Will Help You Become A Good Steward For Your Company’s Finances.

Minimize Your Inventory to Help Your Working Capital

Having your own inventory is considered as an asset by many entrepreneurs. But if you want to free up your company’s cash flow and enjoy better net working capital, you need to optimize it. That means increasing inventory turnover cycles, avoiding stockpiling and reducing slow-moving inventories altogether. An asset tracking can be useful in achieving these goals by providing valuable insights into inventory levels, usage patterns, and areas for cost savings

To minimize your inventory, most high performing businesses recommend relying on pull inventory methods like drop-shipping and the just-in-time strategy. These techniques usually involve buying the products (or the materials needed to manufacture it) based on demand. In short, you have to get the goods after your customers have ordered it. This will help significantly reduce your company’s expenses, ensuring your working capital is properly utilized.

At the same time, you need to boost your business’ inventory turnover cycles or days inventory outstanding (DIO) if you want to properly manage your working capital. This means minimizing the days you hold a product before selling it to a customer. To achieve this, you need to constantly measure the turnover rates, compare it to your competitors’, and introduce techniques to minimize DIO.

Switch to Electronic Payment Systems

To effectively manage your business working capital, you need to be able to send out invoices quickly. By introducing an electronic payment system to your company, you can achieve that plus more.

Converting to electronic payables and receivables comes with numerous benefits. For instance, it gets rid of the inefficiency caused by manual processing, lost receipts, and high invoice demands. Also, electronic payment systems can be automated, allowing you to send invoices more promptly. As an added bonus, this opens opportunities for your business to get more favorable capital payment terms and other perks.

Improve Your Collection Processes

Collecting invoices is vital for maintaining your cash flow and shortening your working capital cycle. Unfortunately, this is also a process in which every business runs into snags or delays. It’s not uncommon for customers and clients to try and delay payments as they try to manage their own cash flows.

A good collection process can give your working capital cycle a significant boost. It guarantees that most, if not all, of your pending invoices get paid within the term set by the agreements with your customers. A clear collection system also ensures that invoices are assigned to the right specialist, i.e. overdue accounts must go to collectors that specialize on collecting late payments.

Take a look at your existing collection workflow and see if there are segments that need to be improved. Try to check if there is a clear schedule of reminders and actions that should be taken as the customer’s due date approaches. Make sure everyone is on the same page with regards to collection goals, and how important the process is to the business

Introduce New Payment Options for your Customers

If you’ve stuck to only one payment option for your clients or customers, you’re shooting yourself in the foot. In this age, digital solutions now exist for processing payments in addition to traditional check or cash payments to the bank. Your business should be leveraging these digital solutions because they have long-term benefits to offer.

One of these advantages is convenience. Digital wallets, for instance, provide a means for both consumers and businesses to settle obligations without having to meet. Both parties just need an account at these e-wallets so they can send and receive funds with one another. Transactions are instantaneous, eliminating the usual processing time in traditional payment methods.

Making multiple payment options available for your customers can also potentially speed up the collection process. They also reduce stress on both your collection teams and the client. With the instant receipt of funds made possible by digital wallets, for instance, customers have almost zero excuses for late payments.

Pay Lenders and Suppliers on Time to Help Your Working Capital

Paying vendors on time is another great way to efficiently handle your working capital. Not only does it ensure proper cash flow, but it also allows you to instill discipline in your business whenever it makes payments. Additionally, it makes suppliers feel more at ease with your company, thus making them more flexible when it comes to discussing prices and contract terms.

So assess your payment terms with your supplier or debtor, and check the agreed-upon window for paying for their goods and services. If the time frame seems too long, then you might want to discuss it with them so you can shorten it. Just make sure the payments you make stays within your company’s budget. Simultaneously, you can reduce potential bad debts by implementing rigorous credit control procedures in your business.

Making sure that all your payments to lenders and suppliers are on time will also improve your credit score tremendously. A good credit score gives you access to more financing options. A positive standing will make sure that you can obtain financial assistance anytime the need arises.

Get Adequate Financial Assistance

Business loans can help you improve your business’ working capital management in several ways. For example, short-term loans can help give your company a financial boost in case its cash flow is acting up. While this is essentially a band-aid solution, it will fund your operations long enough for you to fix your current financial issues.

Or you can opt for long-term business loans to acquire fixed assets and stabilize your company’s cash flow. You can then use the recently fixed cash flow to repay the loans and any other unsettled expenditures. This will ultimately lead to better relationships with lenders, allowing you to get more flexible terms in the future.

Alternatively, you can consider talking to alternative lenders. Unlike banks, these debtors tend to offer more generous deals for their financial services. Depending on where you go, you could end up enjoying more money borrowed, less interest, and generous repayment terms. For instance, you could receive a cash advance against your pending invoices by entering into a accounts receivable factoring agreement with a lender.

Control Your Expenses Carefully

Last but not least, learn how to monitor and curb your company’s expenditures. To diligently track your business’ expenses, you need to gather as much data as you can about your historic costs. That way, you’ll be able to make a plan to reduce future expenditures.

You should also manage your business’ variable costs. You can do this by taking a look at your company’s previous variable expenses and calculating how much they contribute to the overall expenditures. Then set budgets for each of these expenses and implement it during the following months. If you’re running a large company, then you shouldn’t ignore small expenses. Despite their size, they can easily accumulate and affect your working capital.

You might also want to think about setting up dashboards. Dashboards allow you to take a snapshot of a specific group of data with just a click of a mouse. You could take advantage of this capability to gain an overview of your business’ cash flow anytime you need to. These software solutions help you make informed decisions when it comes to managing your cash flow and working capital.

Learn How to Manage Your Working Capital

Through proper business working capital management, you can ensure your company’s financial health, maximize its operational efficiency, and improve its profitability. An optimized working capital cycle, together with cash flow, is key to ensuring your business’ survival amidst a very competitive landscape. The tips outlined above should help in improving your working capital cycle.

Adding Value to Your Business

How to Increasing the Value of Your Business

If you’re looking to sell a business, it’s helpful if you are constantly adding to the value of your business. In this articles we’ll explore some ways to do that.

A typical business really has two values. The “academic” value is the one determined by a professional business valuation. The other is the “true market” value. The academic value is arrived at with a formula based on the firms’ hard assets, cash flow, industry averages and multiples. The fair market value also takes those items into consideration, but then considers what buyers are really willing to pay.

For many small and mid-sized businesses hard assets like equipment, vehicles, land, buildings, and inventory may be limited. For some small businesses there may be no hard assets at all. Instead, their value is based on intangibles like employees, business processes, customer lists, location and business relationships.

Adding value to your business requires focused efforts. To maximize the fair market value of your business, it’s vital that you capitalize on those intangible assets.

• Develop key employees. Buyers generally aren’t interested in paying a premium if the business relies on you for its success. Remember to delegate responsibility to key employees and involve your key staff members in the decision making process. Demonstrating that your company’s success is reliant on your capable, well-trained employees – not just you – will pay off at the time of sale.

• Document what you do. Be sure that job descriptions, operation processes, and strategic plans are documented. Documented records and plans give a buyer greater comfort that he or she will be able to emulate your successful growth and will help your buyer obtain financing. Also, be sure to keep business records like sales and expense reports, internal profit and loss statements/balance sheet, and tax returns clean and well-organized.

• Build relationships. Name recognition, customer awareness and your reputation are all part of your business value. Even if your company doesn’t have many hard assets, your relationships are key. Consider diversifying both supplier and customer accounts.

• Improve cash flows. A potential buyer wants to see the “true cash flow.” And, of course, in the business world cash is king. Be sure you are driving all income to the bottom line.

• Review your assets. Sell off or dispose of unproductive assets or unsalable inventory. Remove or buy off any assets that are primarily for your personal use.

• Find and build your niche. You don’t have to be everything to everyone. Buyers will pay a premium for a niche that has barriers to competitive entry.

• Remodel, clean, and organize. What’s the first thing anyone does when they put their home on the market? They spruce things up and make sure everything is in its right place. Yet, in business, that’s rarely considered. A well-maintained facility will get the best price. Even businesses that lease space can benefit from a thorough cleaning and organization to convey a feeling of quality and efficiency.

Keep these important intangible assets in mind if you’re looking to sell your business. They convey a value that financial statements alone do not. If you are looking to sell, make a plan. Start working on the intangibles well in advance of putting your business on the market. For many business owners, they reach a point where they burn out and psychologically retire early, before a sale is made. It’s important to work to keep your focus right until the sale is complete. Make sure that focus is on adding value to your business.

Finally, when the time to put your business on the market arrives, consider lining up key specialists who will help you make the most of the sale – an attorney, an accountant, a small business coach and a business intermediary to name a few. Remember, you only have one chance to sell your business, so you want to do it right.

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Part 1- How to Profit through Time Management

Manage Time Like Money and Profit Through Time Management

Why did you get into business for yourself? Was it to be your own boss? Choose your own hours? Have more time with the family? Spend more time doing what you love? How do you profit through time management? Chances are, you answered yes to all these questions.

These days, you probably wonder where the time went. Why you spent 12 hours at work and barely make a dent in your to-do list. We already know that time is a key resource for you and your business, but it’s also a key resource in your life. Harnessing and leveraging time is the only way to enjoy life, and have a profitable business at the same time.

A few years back I was working with a client who told me that he hadn’t had a date with his wife in years! He was running a million-dollar business with ten employees but he didn’t take any time off for himself. We were able to restructure the business that made him more profitable and he was able to get regular dates with his wife.

The Pareto Principle in Business

You may be familiar with the Pareto Principle; 80% of your results can be attributed to 20% of your efforts, while 20% of your results can be attributed to 80% of your efforts. As the leader of your business, you want to focus your efforts on the activities that yield the greatest results.

Most business owners carefully manage their financial and personnel resources, and pay due attention to their performance. Marketing plans and budgets are created, people are hired and fired. What most business owners don’t realize is that time – and the time of all employees – requires the same attention and diligent management.

Time will never manage itself.

Time is invaluable when you are running a business. That is why it is important to manage time like money and profit through time management. Time will never manage itself. The decision to make a pro-active effort to manage your time must come from you. Once you have committed to taking ownership for your own time management, there are a host of tools available to you. But first, you must understand how much your time is actually worth, and where you are currently spending it.

What is Your Time Worth?

Ever wonder what your time is actually worth? Here’s a quick way to figure it out:
Target annual income A.
Working days in a year B. 235
Working hours in a day C. 7
Working hours in a year D. 1,645
A/D = YOUR HOURLY WORTH (before tax + expenses) E.

This is a very simple calculation intended to put your time in perspective. In reality, no one is productive for each of the 1,645 hours. Various studies have put actual productivity at anywhere between 25 minutes and four hours per day. Either way, there’s a lot of room for improvement.

How Many Days Do You Have Left on Earth?

Let’s look at it another way:

Your age A.
Days in a year B.
Days spent on earth to date (A x B) C.
Average life expectancy D. 70
Total projected days on earth (D x B) E.
Estimated days left (E – C) F.

This exercise isn’t intended to scare you, but bring your attention to the importance of choosing how you spend each hour you have available. It is a choice! By developing the skills required to manage your time, you will not only have a profitable business but rewarding and balanced life.

The Five Culprits of Time Theft

Chances are – if you’re like most people – you have no idea where your time goes. You’re likely frustrated by the fact that you can spend 10, 12, even 14 hours a day working, and not make a dent in your to-do list, or only bill half of those hours.

When we’re too busy and overloaded with work, we often switch into reactive mode. We can’t make it to the bottom of the pile and end up handling issues and making decisions at the last minute. One of the great benefits of choosing to become proactive in time management is that you can become proactive in all other areas of your business. When in a proactive mode, you can take steps to grow your business through networking, building programs, and establishing systems.

Before you investigate where your time goes, let’s take a look at the top five culprits of modern-day time theft:

1. Time Management and Your Email

Make profit through time management and managing your email. How many times a day do you check your email? Is Outlook or Mail constantly running on your desktop? Email – internal, external, personal and business – clogs up your day like no other communication channel. For many of us, it is possible to spend the entire day writing and responding to emails without even glancing at our inbox. The number of emails sent and received each day by the average person in 2007 was 147. Multiply that by an average of two minutes per message, and you have spent almost five hours on email in a single day.

2. Time Management and Your Mobile Phone

Cell phones have created convenience, security, and the luxury of telecommuting. PDAs and cell phones have also created a society that expects to be able to reach you at any moment or at least receive instant responses to their calls. Your cell phone or PDA not only robs you of your time during the day but also during the evenings and on weekends when you are not at work.

3. Time Management and Your Open Door Policy

If you make it easy for your staff and associates to interrupt you, they will. Too often, open-door policies are set up by human resource departments to create clear communication channels. Instead, they create a clog of employees lined up at your door seeking immediate answers to non-emergent issues.

4. Time Management in Meetings

You can profit through time management if we also manage our meetings well. How many times have you been to a meeting that was scheduled to be an hour, and ended up lasting three? How often do you attend unnecessary meetings? Or meetings that run off-topic? Meetings can be a huge source of wasted time – your valuable time. In a senior management or ownership position, your day may consist of back-to-back meetings, leaving only your evening hours to complete the tasks that should have been done during the day.

5. Time Management: YOU!

Every person has daily habits that sabotage their ability to work productively and efficiently. Many entrepreneurs and business owners can’t separate business hours from leisure hours. Some get caught in a time warp while surfing the internet. Others – mainly overachievers – can become paralyzed by perfectionism or procrastination. Mainly we just don’t have the tools to schedule and structure our time in a way that fits with our working style.

Where Does Your Time Go?

So far we’ve seen that time is a resource that should be as carefully managed as cash, we’ve figured out what your time is worth, and looked at the top five culprits of time theft. You’ve committed to taking steps to become a better time manager. What now?

Personal Time Management Research Exercise

The next step is to take a good, (and honest!) look at how you spend your time. Once you understand your patterns and habits, you begin to implement the strategies in this chapter that will make you a better time manager.

Step One: Time Audit

Use the Time Log Worksheet at the back of this chapter to record how you spend your time for three working days in a row. Be honest, and be specific. Include time spent in transit, surfing the web, interacting with clients and colleagues, as well as how your time is spent at home in the evenings. The more information you can record, the easier it will be to analyze your time management skills in step two.

Step Two: Time Categorization

Once you have recorded your time for three days, sit down with all three sheets in front of you and identify the following using different colored markers or highlighters:

• Driving, public transportation or other travel
• Eating, including food preparation
• Personal Errands
• Exercise
• Watching TV
• Sleeping, including naps
• Using the computer, personal use only
• Being with family/friends
• Emailing, including checking, reading, and returning messages
• Talking on the phone, including checking and returning messages
• Internal meetings
• External meetings
• Administrative work
• Client work
• Non-client, non-administrative work

Step Two: Time Analysis

Now that you have identified how you have spent your time, go through the worksheets one more time and identify if you have spent enough, too much, or too little time on each main task.

Then, based on your observations, answer the following questions:1. What patterns do you notice about how you spend your time during the day? (i.e., When are you most productive? Least productive? Most or least interrupted?)

____________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________

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2. Write down the four highest priorities in your life right now. Does your timesheet reflect these priorities?

_____________________________________________________________________________________________________________________________
3. If you had more time, what would you do?

_____________________________________________________________________________________________________________________________

4. If you had less time, what wouldn’t you do?

_____________________________________________________________________________________________________________________________

5. Could you remove the items in question four and add the items in question three? Why or why not?

_____________________________________________________________________________________________________________________________

6. Is procrastination a problem for you? How much?

____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________

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Go here to read Part 3.
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What is the One Missing Key to Your Business Success?

Just like humans, every business has weaknesses. In some cases business owners simply need to work on one or two areas to propel their business to amazing growth and profits. What is the one missing key to your business success?

One of my business ventures was a small service company with 130 employees. Our largest customer was a Ritz Carlton hotel, and the hotel chain was involved with the Malcolm Baldrige Process, a way for organizations to achieve outstanding results. Our leadership team decided to get involved with this process at a state level, and we hired a business coach to help us identify areas of improvement. We grew our profits by more than one thousand percent!

What is the Missing Key to Business Success

There are seven keys to business success according to the Baldrige criteria. Over the next few blog articles, I will be writing about these seven keys. How is your business doing in these areas? Growth normally requires things like small business loans and access to business credit lines but without these 7 keys you will not be managing that growth as effectively and efficiently as you could.

1. Leadership.

Most small businesses are strong in the area of leadership. It takes strong leaders to start and run business. However once your business is going, how do you keep the momentum going? Do you communicate a clear vision, strong values and a compelling mission? Is your team growing, learning and adjusting to the business environment?

2. Strategic Planning.

In my work with small business owners, many do not have a current business plan. That is a huge mistake, especially in this volatile business environment. For example, you would be surprised how many businesses are fortunate enough to get a small business loan but then they don’t use the funds for revenue-generating initiatives and the end result is just more debt and no new clients or business. Every business owner should have short and long term goals, and every employee should understand the goals. Consider all your stakeholders during your planning.

3. Customer Focus.

This area is also a strength for many small business owners. But as a business grows it is easy to lose touch with customers, and without customers your business is dead! Do you have ways of measuring customer satisfaction or dissatisfaction? Are you improving?

4. Measurement.

Speaking of measurement, do you know your business “stats?” In the same way that sports teams know statistics about players, coaches and their offense and defense, you need to track important information. Nearly everyone tracks sale and profits, but do you know the value of your business? What are your key business success factors? Do know how your numbers compared to competitors? You should.

5. Workforce Focus.

Many business owners struggle with finding good employees. Your employees are critical to your business success. Cutting edge leaders believe that their employees are more important than their customers. How do you attract and retain good people?

6. Operations Focus.

The way you deliver your product or service can make you or break you. If you can provide excellent products and services consistently every time, your customers will likely stay with you. Otherwise, you are “rolling the dice.” Wise business owners develop measurable processes that ensure a great customer experience with few exceptions.

7. Results.

This, of course, is the bottom line of all your efforts in business. Once you have determined what is important to measure and have established measures, how are you doing? Are your “stats” improving? How do they compare with your competition or industry? Are your sales and profits growing, or are you struggling like many small businesses? Is your business value growing?

Conclusion

After reviewing these seven keys, what are the top one or two areas that could use some attention in your business? Focus your efforts on the area where your business needs to improve. If you need help, don’t be afraid to seek it out.

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Part 3- How to Profit through Time Management

Read Part 1 How to Profit Through Time Management or Part 2 of this article.

Personal Time Management Strategy

Choose the top five tips from Part 1 that you think will help you the most, given your personal time management study. This time management study will help you finish all your important tasks and appointments on time. Write them below, with three corresponding actions that you will start tomorrow. For example, if you are going to set a strict schedule, three actions might be to establish the schedule, communicate it to your staff, and re-record your voicemail message.

a. _______________________________________________________