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Why working capital is essential for your business

 

If you are a new business starting to take off, or a well-established business looking to expand, you will need to understand the importance of working capital.

Working capital is a simple, albeit useful measure that businesses use to indicate their ability to complete day-to-day operations and to assess their financial health. The amount of positive working capital a business needs to run efficiently can vary, depending on a wide range of factors such as business type, operating cycles, and any future growth plans.

So why is working capital essential for your business?

Having positive working capital means your business is able to meet its short-term financial obligations. It enables you to buy new materials and equipment and improve the running of your business.

Working capital is essential for:

  • Preserving Positive Cash Flow

Maintaining a good cash flow will allow you to fulfil obligations such as payroll, tax, rent, utility bills and other operating expenses.

  • Purchasing Inventory

You will need working capital to maintain stock levels and to secure new products to sell. It can also come in handy when larger upfront payments are required for things such as bulk orders.

  • Improving Equipment & Machinery

Working capital can be used when looking to improve your current equipment and machinery, for example purchasing better software solutions to improve efficiency or upgrading equipment to increase productivity.

  • Investing & Growth

Sudden investment or growth opportunities may come your way, to take advantage of these, immediate working capital is essential.

Your business can take a variety of steps in order to effectively manage your working capital. From simple tasks such as identifying your day-to-day cash requirements, to shortening the credit terms you offer and constantly evaluating your inventory needs. You may also look to obtain finance to boost your working capital during times of increased financial liability or periods of decreased sales.

If your business owns equipment or machinery, you may consider a sale and leaseback financial arrangement to gain access to additional cash. This involves your business selling their equipment to a financier, who will then immediately lease the equipment back to you, generally over a 3 to 5-year term.

This provides you with a timely cash injection for working capital, whilst still maintaining access to the asset needed to continue trading. Ultimately allowing you to redeploy capital that was invested in assets, back into the core business. Generally, assets that can be used include business vehicles, commercial vehicles, commercial equipment, heavy machinery, farming machinery and more.

Raising capital through your business assets could help solve cash flow issues both short and long term whilst providing taxation benefits.

Morris Finance are able to raise funds from a number of commercial goods.  Unlike major institutions, we do not discriminate between goods, industries or profiles and our terms are flexible, providing tailored solutions to meet your needs and goals.

We offer a range of commercial products to provide cash flow for your business. Our team of dedicated finance brokers and new business specialists can provide you with information and access to financial solutions that will allow you to grow your business.

Contact us today to learn more about how we can help you raise capital.