Small Business Working Capital

The role of working capital management in a small business

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The role of working capital management in a small business

Working capital, also known as circulating capital, refers to the difference between current assets and current liabilities on the day the balance sheet is drawn up. It is also a representation of the net investment in current assets necessary to support the day-to-day operations. Working capital ensures that a small business can continue with its activities, as well as meet short-term debt and upcoming operational expenses.

What are the signs of a healthy cash flow statement for your small business?

Working capital management is essential to the success of every small business. Businesses that run at a loss would be more liquid and profitable if they had the knowledge and implementation of efficient working capital management. The concept refers to a system that helps to ensure that tied down capital is released and put into productive uses. Working capital management is vital to a small business for the following reasons:

1. Increase investment portfolio

When funds are discharged through a functional working capital management system, they act as a cheap source of financing for the expansion of projects or investment. The return on investment (ROI) on currently invested assets should outweigh the average cost of capital to attain wealth maximization. 

2. Mitigation of cost of capital

Working capital management strives to minimize the cost of capital, which is the cost of maintaining the working capital. The costs involved in maintaining a healthy level of working capital are carefully negotiated, monitored and managed. 

3. Increased profitability

One of the primary objectives of working capital management is increasing the profitability of a business. One of the ways of growing the profit margin is by saving the financial costs payable for managing current liabilities. 

4. Maintaining the smooth operating cycle of working capital

The operating cycle refers to the whole period of operation of a business. Smooth operation of the operating cycle is crucial for the proper functioning of a small business. From the acquisition of raw materials to the production and delivery of the finished products, working capital management ensures that the processes run smoothly.

5. Solidify the going concern

It is not uncommon for a very profitable company to go out of business if it is unable to keep up with the short-term financial requirements. For a company to remain in business and be competitive, it must satisfy both its short and medium-term obligations, which is only possible through working capital management.

Managing Small Business Cash Flow is Simple... With this Tip!

Without proper working capital management, a business is likely to fail. If your small business is short of adequate working capital, it is time to seek expert advice on how to improve the financial status of your business. Talk to us at LVRG today for guidance on how to manage your working capital, or click below to apply now.

 

Working capital explained and tips on funding a small business

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Working capital explained and tips on funding a small business:

Nobody faces more challenges on a daily basis than business owners. In fact, for owners of small and medium sized businesses, handling many different challenges is the source of great satisfaction, along with some headaches. But when business owners are asked to name their greatest challenge, one thing tends to top the list most often; accessing working capital to manage cash flow. Simply put, making sure there is enough money flowing in, to cover all the money that’s flowing out.

Working capital keeps businesses afloat and humming along; it’s the common measure of your company's liquidity, efficiency and overall health. Calculating working capital is pretty simple: deduct current liabilities from current assets. If your current assets do not exceed your current liabilities, you run the risk of being unable to pay your short-term creditors on time. This can lead to late fees, delayed delivery of important goods and more business crushing problems. Business owners should make sure to have enough working capital in the tank to meet financial obligations, and cover day-to-day expenses.

Most small business owners will tell you that the period between completing work and getting paid is often much longer than expected. It doesn't matter whether you're a physician waiting 30, 60, 90, or 120 days for insurance reimbursements, or a contractor waiting to be paid after completing a job (just as two examples), when you offer a product, or service, the pay will eventually follow, but not necessarily on your timeline. Even though you may not be getting paid right away, you still need to pay your employees, buy inventory, pay vendors, and keep the lights on. This is where small businesses wind up in a cash crunch, and many don’t make it out alive. In these circumstances, working capital financing can help cover your expenses.

A closer look at working capital loans

A working capital loan can be used to finance the everyday operations of your company, such as wages, and to cover accounts payable. However, it's important to remember that they are short-term solutions, typically 4-12 months and should not be used to buy long-term assets. Too many business owners fail to understand the difference between working capital and expansion capital, which can mean that they don’t spend enough time developing their growth capital the way they should. When it comes time to expand the business, there isn’t any money available for that expansion, so the business can’t develop the way it needs to in order to keep up with the competition. That can have devastating effects on a company that would otherwise be very successful, and it’s something any company needs to avoid.

Working capital loans are ideal for funding a small business when:

  • You haven't been paid by your clients but you need to quickly deal with temporary problems, such as a drop in sales. This enables you to keep moving forward while maintaining high levels of customer service. It also allows you to pay your own bills on time, while protecting your business credit rating.

  • You want to take advantage of an unexpected opportunity, such as a new job that will require a lot of resources and time. Or, maybe you have an opportunity to buy a huge amount of inventory at a deep discount and need capital in a hurry.

  • You need the funding to adjust to predictable cash flow shortages, such as seasonal challenges. With a working capital loan, you'll be able to replenish your inventory to guarantee revenue.

Other benefits to be aware of

The other great benefit of this form of financing is that it doesn't require you to give up any equity in your company, and you don’t have to go through a long drawn out application process required by a bank. Also, in many situations, working capital loans can be unsecured, so you don’t risk losing your home, or other personal assets if things go south.

Help manage cash flow

Many small business owners find it hard to keep money in the bank, which means that, when there is a financial crunch, they have no money to fall back on. Working capital financing helps the business owner meet significant overhead and operating expenses, from increasing inventory to paying employees. Sometimes, it may even cover mortgage, and payroll expenses when the business has financial challenges.

Bridge seasonal shortfalls

Seasonal shortfalls occur when the business is tight on operating capital. At the end of the busy season, a company may need extra cash to cover the coming months for ongoing expenses like insurance, rent, salaries and utilities. There are literally thousands of business loan lenders out there, but very few a strategic funding source such as LVRG.

Hire additional resources

One of the most crucial things for any business is to provide stellar customer service to its clients. During busy periods, a company may seek a working capital loan to facilitate the hiring of additional temporary staff to meet the expectations of their clients and handle the rush.

And then there are those costs that no business owner sees coming. The sudden need to replace an important piece of equipment, or the need to upgrade technology to improve efficiency and save money in the long run. Repairs, sprucing up the exterior, landscaping, even marketing and advertising can all be critical elements to your brand and your ability to grow the business. In today’s super competitive environment, you need to constantly have your best foot forward and there is no time to skimp.

Another important point worth mentioning, working capital financing is not just meant for down times. Although working capital loans are valuable for your short-term financing needs, they can actually be used as a financial management tool as well. They allow business owners to keep operations running smoothly without depleting cash reserves or sacrificing the cash flow they've worked so hard to build. The reality is this, working capital to a business is like gasoline to a car. Without filling up your gas tank, the car stalls out. Same is true for your business, so it’s best to keep the tank full.

If you want to learn more about working capital financing for your business, LVRG can help. LVRG is one of America's most trusted and respected small business funding companies. We're a strategic funding source for fast small business loans. We love growing businesses. In fact, that’s all we do!

 

How Working Capital Financing Can Boost Small Business Growth

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Small businesses experience cash flow problems at one time or another, regardless of how experienced the owners are. Entrepreneurs mostly rely on working capital to keep the business moving and, when there is a shortfall, the next best option is to seek financing. Working capital financing comes in handy to meet expenses like the purchase of inventory, meet payroll obligations or other short-term obligations. It reduces the pressure that comes with hitting a rough patch in the course of operation.

There are numerous business loan lenders that small businesses can seek financing from, however, most small business owners prefer a strategic funding source such as LVRG. Depending on the needs of the business at the time of funding, there are a variety of product options that the business owner can choose, including fast small business loans, lines of credit, term loans, small business capital loans, and cash flow loans. Once a business can meet its short-term obligations through working capital financing, it will be able to invest in long-term growth.

Working capital financing can boost the operations of a small business in the following ways:

Help manage cash flow

Many small business owners find it hard to keep money in the bank, which means that, when there is a financial crunch, they have no money to fall back on. Working capital financing helps the business owner meet significant overhead and operating expenses, from increasing stock to paying employees. Sometimes, it may even cover mortgage expenses when the business has financial challenges.

Bridge seasonal shortfalls

Seasonal shortfalls occur when the business is tight on operating capital. At the end of the busy season, a company may need extra cash to cover the coming months for ongoing expenses like insurance, rent, salaries and utilities.

Hire additional resources

One of the most crucial things for any business is to provide stellar customer service to its clients. During busy periods, a company may seek a working capital loan to facilitate the hiring of additional temporary staff to meet the expectations of their clients and handle the rush.

Undertake a large project

There are times when a small business will require more space to remodel their business structure to be able to provide a better experience for their clients. Financing for working capital can fund such a project to support the growth of the business.

At LVRG Funding, we have the solution to your business funding needs. Contact us today and our financial experts will help guide you on the working capital funding process.

 

Small Business Growth Capital, Explained. And When Your Business Needs It.

Capital is so important to growing a business. If you don’t have what you need for your business’s development, all you’re doing is paying your bills and just getting by. Having enough working capital to pay those bills on time every month is important, but to take your business further, it’s growth capital you should be paying close attention to. To do that, you have to understand how growth capital works, what it does, and how it helps your company develop from a small business to something much larger and stronger.

There are three primary sources of growth capital for a small business:

1. Equity capital from the founder(s) and/or outside investor(s).
2. A combination of operating cash flow and profits left in the business, aka, retained earnings.
3. Borrowed funds, typically from a lender or bank.

It can take time to see a business develop, but with the right amount of growth capital, that development is certainly possible. Too many business owners fail to understand the difference between working capital and growth capital, which can mean that they don’t spend enough time developing their growth capital the way they should. When it comes time to expand the business, there isn’t any money available for that expansion, so the business can’t develop the way it needs to in order to keep up with the competition. That can have devastating effects on a company that would otherwise be very successful, and it’s something any company needs to avoid.

What Is Growth Capital?

Unlike working capital, which is used for bills and basic, cyclical expenses, growth capital isn’t tied to any particular business cycle. Instead, growth capital is designed to provide long-term health for the business. It builds up over time, and can ensure the business’s well-being. Once a business decides that it is going to make a major change, like an expansion, adding another location, or a merger with another company, growth capital will come into play and be used. These kinds of changes are very expensive, but they are not recurring expenses that are going to be seen every month. Since they aren’t recurring, they don’t come out of working capital.

Without a growth capital fund to pull from, however, a business can’t really accomplish anything beyond its day to day operations. There will not be any expansion when there isn’t any growth capital to use, this generally comes about from poor financial planning and can be profoundly damaging to a small business.

Probably the single most common method for funding business growth is by obtaining a small business loan. However, there are a number of different options that come with small business loans, and in order to choose the right one, you need to understand which loans work best with what type of enterprise. You should take into consideration the type of operation, size of the business in terms of staff and assets, and overall monthly or yearly return. Exploring options for loans can even clue you in to loans that are specifically designed for your type of enterprise. Loans can be either long-term or short-term, and each have their particular uses. Small business loans are usually very reliable, making them a great option for business financing available to small business owners. You can put a small business loan “to work” immediately for your business, whether it means meeting payroll for a few months, negotiating a great deal on inventory for paying in cash or hiring and training those new employees you need.

Many small businesses owners are hesitant to issue equity or take out loans to fuel business growth. However, businesses may find that operations stagnate without an extra capital injection. When your competitors continue to expand and develop and your business can’t do the same, you can quickly end up without enough customers to keep your doors open. A lack of growth capital can translate into a lack of working capital, because the business is not able to keep up with the kinds of things it should be doing in order to compete in its market.

As a company continues to gain a higher level of working capital, it should take that money and invest it back into the company. This is done on a long-term basis, so the investment becomes growth capital and is stored (earning interest) until the company decides that the capital needs to be used for a specific thing. If there isn’t enough money available, the company can wait until it has more, but sound investment strategies shorten that wait considerably. Remodeling the company’s building, adding new equipment, and other large expenses are a big part of a business’s development, and growth capital is the heart of that development. Keeping it separate from working capital is also important, to ensure that it isn’t used for business cycle expenses that could deplete its reserves.

How Does Growth Capital Help Your Business?

When people begin to operate a business, they may not be clear on the major differences between working capital and growth capital. If they don’t begin planning for both types of capital right from the beginning, they may not get what they really need from their business. They also have to be careful that they don’t try to expand too fast, because that can deplete all of their growth capital at once. If it is used up and then more is needed, it can leave a company in a precarious position and stop them from continuing their expansion. If that happens in the middle of growth, it can be highly detrimental and could even spell the end of the business.

In some cases, access to capital is a great way to take advantage of new opportunities. In others, however, it can be a good way to pull a struggling company out of a pit of poor circumstances. Despite the potential for risk, capital can be the saving grace when trouble comes to call, providing the means to bridge the gap between failure and success. A few extra dollars today may mean an empire tomorrow, and can be the necessary protection against closing up for good.

A business loan or any of the funding options mentioned above, whether for a few thousand dollars or a few million, can make previously unavailable opportunities obtainable, providing a customized solution in a time of need and keeping the lights on even when the going gets rough. With ready access to business capital, the possibilities are literally limitless, offering the assets you need to promote a positive trajectory and inspire healthy growth.

Getting into a cash-poor position should always be avoided, because it’s difficult to recover from. It makes sense that companies want to grow as fast as possible, but those companies must be very careful that they avoid the pitfalls of burning up their entire growth capital fund. Instead, it is better to focus on slower growth, so the fund stays strong and the company builds strength at a more sustainable rate.

Companies such as LVRG specialize in providing growth capital to small business owners accross the country, doing so quickly and efficiently. For a small business looking at growth, LVRG is definitely a good place to start. Call toll free (855) 998-5874 or click below.

Revenue Based Financing, Cash Flow Loans & Working Capital Solutions to Boost Your Business... Your Way!

Nobody faces more challenges on a daily basis than business owners. In fact, for owners of small and medium sized businesses, handling many different challenges is the source of great satisfaction and some headaches, too.

But when business owners are asked to name their greatest challenge, one thing tends to top the list most often; accessing working capital to manage cash flow. In other words, making sure there is enough capital flowing in to cover everything that needs to flow out.

There are a variety of reasons why cash flow can be a steep challenge for small business owners. Needs can precede revenue. Or perhaps you’re getting paid more slowly than you’d like. Or if you’re a seasonal business, a garden center, for example, or specialize in hardy, cold weather clothing and you have peak sales months which require that revenue to stretch across your off-season months.

Often, business owners can optimize cash flow by negotiating longer payment cycles with creditors and encouraging debtors to pay in shorter time periods. But there are other solutions that can help you sail through the lean months with plenty of working capital on hand: a short term business loan, cash flow loan or merchant cash advance. 

You can put small business financing from LVRG “to work” immediately for your business, whether it means meeting payroll for a few months, negotiating a great deal on inventory for paying in cash or hiring and training those new employees you need. Our business financing solutions can help you operate without missing a beat or even take advantage of an unexpected or one time business opportunity. 

Some of the common reasons a business owner will seek financing are:

  • The purchasing of equipment in order to grow the existing business or the purchase of stock to expand the business
  • Improving the business’ credit by allowing the owner to pay off other loans
  • Marketing the business via a specifically designed campaign
  • Renovating the premises or expand them in order to raise the business’ current earning potential
  • Purchasing new property for the business to expand to
  • Staving off financial stagnation during periods of slow business

Benefits of revenue based financing and cash flow loans:

In addition to the much easier method of obtaining working capital from LVRG, as opposed to a bank, revenue based financing, cash flow loans and merchant cash advances have a lot of incentives when it comes to small business financing:

  • Much quicker approval times from LVRG as opposed to a bank. This translates to faster cash-in-hand, allowing you to take advantage of current market prices.
  • Whereas business loans require you to have collateral in order to gain favorable consideration, a revenue based loans or MCA simply requires you to be subject to a limited amount of conditions.
  • A cash flow loan or merchant cash advance is also much more beneficial to the cash flow of a company since it does not require any monthly payments or upfront fees that are characteristic of loans.
  • There is no limitation on how the funds acquired from a cash flow loan or MCA can be used. Funds that are loaned through a financial institution must be used for the stated purpose by the business. As a result, money from a business loan has a very narrow scope of action as compared to money that comes from a cash advance.
  • No worries about points of upfront fees.

And then there are those costs that no business owner sees coming. The sudden need to replace an important piece of equipment or the need to upgrade technology to improve efficiency and save money in the long run. Repairs, sprucing up the exterior, landscaping, even marketing and advertising can all be critical elements to your brand and your ability to growth the business. In today’s super competitive environment, this is no time to skimp, especially when applying for business funding. Working capital can be just a few clicks away.

We understand that small businesses need working capital to keep their operations humming and to pursue business opportunities as they arise. That’s why we provide working capital to businesses across a variety of sectors, in every state in the U.S.

We also understand that when business owners need financing, they need it now not weeks or months from now. So, we’ve made our application process as simple as possible, with a minimum amount of paperwork and documentation required. You won’t need to spend days and weeks retrieving tax forms and statements. Instead, we’ll talk to you about your business and your vision for the months ahead.

Once approved, you’ll have the funds in your account in as little as 24 hours. How’s that for turnaround? And when we say “working capital,” we mean it. It’s up to you how to best use the funds, for any legitimate business expense.

So what are you waiting for? Apply today for a business financing solution from LVRG. Call (855) 998-5874 or click below! We're here to help...