Secure Working Capital for Your Small Business

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Secure Working Capital for Your Small Business
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How to measure working capital
Working capital is determined by looking at the
assets of a small business. Understanding the
working capital needs of a business involves
forecasting monthly inflows and outflows.
Examining current working capital can help you
understand whether your business can maintain its
current financial position. If not, a working
capital loan might help. Working capital can be
calculated using the working capital ratio or by
creating a working capital checklist.
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What is a working capital ratio

• Calculating working capital ratios allows small
  business owners to get a detailed view of their
  companys short-term financial position. There
  are two formulas that you can use to calculate
  working capital. The first is the current working
  capital ratio. The second is the net working
  capital formula. To use them, youll need to
  understand what assets and liabilities are.
• Asset An asset is a property that has monetary
  value. Assets appear on a companys balance sheet
  and inventories of probate estates. They are
  classed as current or long-term based on
  liquidity. Current assets include cash,
  inventory, accounts receivable, and other items
  that can be liquidated within 12 months.

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Liability Liabilities include everything a
business owes, like accounts payable, mortgages,
payroll, and other financial obligations.
Heres the formula you can use to measure
working capital Working capital Current
assets Current liabilities Assets and
liabilities of a small business are used to
calculate the working capital. The resulting
number shows how healthy your company is.
According to industry standards, a balanced, or
healthy, working capital ratio is between 1.2 and
1.8. A ratio less than 1.0 means you have
negative working capital. In other words, your
company might not be able to cover its current
liabilities.
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Net working capital formula
Net working capital is another calculation that
shows how much money a business has on hand to
meet current liabilities. Net working capital
Current assets Current liabilities The
resulting dollar amount is the amount of money
available for short-term operational expenses. If
the amount is negative, it indicates that your
business doesnt have enough cash to meet current
obligations. If thats the case, it might be a
good time to consider a loan or some other type
of financing.
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Working capital checklist
The working capital ratio is a tool that can help
you quickly assess cash flow. A working capital
checklist can help you get a better understanding
of your current assets and liabilities.
Assets

• Reviewing the following current assets will show
  your businesss current working capital. If
  assets are not greater than liabilities, then
  working capital financing may be a practical
  solution.
• Cash position The cash you have in your cash
  register, safe, checking account, and savings
  account.

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• Liquid investments Review short-term
  investments like money markets and CDs that
  mature within the next 12 months.
• Prepaid expenses Prepaid expenses reduce
  long-term operational costs and often result in
  discounts.
• Accounts receivable (AR) AR describes the money
  that is owed to your small business. To maintain
  a healthy accounts receivable balance, be sure to
  send invoices on time, follow up with customers,
  and resolve billing disputes right away.
• Inventory Inventory management is an important
  part of any organizations operations. Ideally, a
  small business should have an equal balance
  between the on-hand inventory and sales.

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Liabilities

• A companys liabilities include the money owed to
  employees, vendors, government agencies, and
  banks.
• Accounts payable Good business practice
  suggests avoiding late payments to vendors and
  keeping detailed records of all financial
  transactions.
• Short-term debt Business credit cards and lines
  of credit provide flexible short-term financing
  for businesses. But be sure to take note of how
  much credit is available when you are analyzing
  working capital.

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Why Choose Biz2Credit?

• Trusted partner for franchise funding
• Biz2Credit was founded in 2007 and has provided
  more than 10 billion in loans.
• Dedicated support team
• Tailored financing solutions

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