Why is working capital management essential? One simple way to manage it

Working capital management is vital for start-up businesses, do you agree? Of course you do! We ask a question, how can a business grow, if the management is running scares in working capital? if the management needs to worry about the payment to its employees at the end of every month? To understand what we are referring to let’s start from the scratch- Working capital is the money needed to fund the normal, day to day operations of your business. It ensures you have enough cash to pay your debts and expenses as they fall due, particularly during your start-up period. Very few new businesses are profitable as soon as they open their doors. It takes time to reach your break-even point and start making a profit.Why is working capital management essential? One simple way to manage it. To reach the goal a business needs planning. In this article, let’s discuss the need to manage your working capital, to have a free mind for reaching your desired objective. Why is working capital management essential? One simple way to manage it. Generally the start-up companies concentrate on procuring capital for long term investments, as they believe that long term investments are what give return. What we suggest is that funding your working capital is equally important especially for start-up companies. We don’t need to tell you how to maintain sales or bring down your operational costs, that is one thing you ought to know before starting your business.  But we advise you to maintain a working capital, for an optimum period of 2-3 months. So that you don’t have to worry about the day to day expenses and concentrate on your operations. Getting into technicality, what is the right level of working capital for a business? The right level of working capital depends on the type of business and the circumstances. For instance: Businesses that only sell services, and do not need to pay cash for inventory need a lower level of working capital. Businesses that take a substantial amount of time to make of sell a product will need a higher level of working capital. It is very important for you to work out the right level of working capital, low and high level of working capital is detrimental to business. How? High- you have surplus funds and not earning enough return. Low- well low has numerous problems, financial issues, lack of tenacity, and the business is affected from all sides. We offer a solution to this issue- As a question of funds arises we think of Banks! But banks don’t want to lend money to start-up companies, especially for working capital. If you have a personal fixed deposit with the bank, then the bank will be more than happy to provide an overdraft facility to you. Now being the director you can provide a loan to your company whenever the company is in need of funds and take it back as per the requirement. If you don’t have a fixed deposit, then getting one in the company’s name or your personal account and working things out as mentioned above is an easy solution. This is what banks prefer, so this will solve your problem of working capital funding in the most serine of ways. Thinks about the interest you’ll have to pay on the overdraft?  Actually the effective interest that you pay for the overdraft facility will be less than 1% a month. As you will earn back the interest that you pay for the overdraft facility from the fixed deposit. Easy right? Click here to know more about Cash Management. _____________________________________________________________________________________________ Feel free to write to us,at [info@taxmantra.com] or call us at +91 88208208 11.