Every company has to have a healthy balance of working capital. Working capital is a financial indicator that assesses a company’s ability to pay its short-term debts over the course of the next year. A company’s surplus current assets might be used for its daily operations.
What is the working capital formula?
To calculate your working capital, you must subtract your current liabilities from your current assets.
Working capital = current assets – current liabilities.
For example, if a company’s balance sheet shows Rs. 3,00,000 as the total current assets and Rs. 2,00,000 as its total current liabilities, then the working capital is equal to Rs. 1,00,000.
Good working capital is an indicator that a company has enough money to invest in its daily operations and growth. Here is a look at how you can rethink working capital strategies in this financial year.
Adapt by emphasizing customer insight.
In order to achieve the agility that is necessary for success, today’s leaders in finance need to place a major focus on adaptation, flexibility, and balance. Customer insight is becoming increasingly important as companies seek to identify their best and most risky clients.
As a result of this, it helps in maintaining a cash flow that is more predictable and provides stability necessary to properly plan, invest, and expand while also reducing borrowing and increasing profit.
Automation and AI for work efficiency
You can make your processes more efficient by automating some parts of the processes. With the help of automation, you can free up some workforce and increase your cash flow to invest in the growth of your business.
Have clarity on how working capital should be used
Working capital management aims to keep the firm running smoothly and maximize available cash. Before coming up with a plan, business owners should look at their current working capital and any factors that could affect how much money they have in the future.
So, if the company expects a drop in sales, it may need to save money for unexpected expenses in the near future. Through supply chain financing, cash that is stuck in receivables can be used to help with cash flow needs in the short term.
If, on the other hand, the business thinks that there will be a large increase in demand for certain products, it could use purchase order financing to pay for increased manufacturing or buying costs.
Entrepreneurs must know how the present circumstances will affect their working capital. Having a clear idea of the most important areas where working capital needs to be used in the current situation will help you plan better.
Leverage technology to good use.
Technology has played a significant role in expanding financial inclusion. Make use of financial institutions that are well-versed in digital technology to facilitate the on boarding and transaction processes.
Usage of technology may save time and expense when it comes to applying for a working capital loan, getting access to a variety of loan options available, on boarding, or the full disbursement and repayment process,
One of the leading NBFCs, Bajaj Finserv, offers a hassle-free business loan that comes with minimal paperwork and no collateral. With their easy online application process, you can get the funds quickly within 24 hours of approval and easily manage your urgent working capital expenses.
