When a business is in its initial stages, it goes through a phase where the cash flow is disturbed or the sales go thin, so much so that it is not even able to handle everyday expenses of the business.
Then come the debt obligations where the business might face a finance blockage, considering the fact that merely keeping the business afloat becomes a big ordeal.
This is when the business might end up resorting to bank loans as the first available option. Other than this, cashing on retirement benefits or putting up the belongings as collateral may seem as the last resort.
But then it raises the question: When will the finances be in order and how long will it keep the business afloat.
Therefore, we bring you five tips and tricks which will help you in making wise decisions whilst you work on optimizing your working capital for your startup.
Be Smart With Your Investments
There is a high probability that you, as a startup, might have been investing in the wrong areas. Let's suppose you are investing a big chunk of the money in production operations and comparatively less on marketing — This is where you start losing customers.
Therefore, gather up all the smartness and invest in places where you can reap the benefits to the fullest.
Another way to go is: outsource certain areas of the business to cut down on employee costs and instead invest in areas that generate maximum output. The outsourcing works effectively, especially when you are a startup and limited on financial resources and cannot afford staff on full-time salary packages.
Customer service or technical support could best be outsourced to save both money and time!
Work on Inventory Management
It is quite a dedication on your part that you, as a business, want a variety of products to be made available to your customers. But this might end up creating problems that you would not even have imagined the first place.
In the quest of providing a wide array of goods, you might get yourself shackled in the chains of overstocking. This, in turn, might eventually lead to increased holding costs.
In addition to this, therein lies the danger of those goods becoming obsolete which obviously could not be sold later.
How Can You Avoid This
A proper check and balance on the inventory can help to avoid this problem. Proper record keeping is essential to keep business operations running. Other than this, making use of stock strategies like just-in-time (JIT) inventory can help keep the line of products under the required amount, thereby reducing the amount of working capital spent on needless inventory stock.
Eliminate Worthless Spending
Now you must be wondering what we exactly mean here by worthless spending. Well, these are expenses you incur on equipment that no longer serves the purpose effectively and, in fact,
has become obsolete.
It is not wise to spend money on repairs that continue to fail again and again. This not only tampers with the levels of productivity at your startup, but is also a waste of money and resources, as spending on equipment which gives out zero outcome doesn’t serve anybody. It simply exhausts the working capital!
Therefore, it is high time that you once and for all get new equipment and retire the old one for good. This is where you need to sit down and do your math. You will see how initial equipment purchasing price will benefit you in the long run. Not only will it prove to be cost effective, but it will also save a great deal of time.
Better Debt Arrangements
You may never face cash flow problems if you know how to handle your debts efficiently. You need to define a proper set of rules and regulations for the sanity of the business and for the working capital to remain healthy.
Make sure you are punctual when it comes to debt obligations. Timely payments will mean you do not have to worry about penalties or extra interest. The key to handle is to negotiate with brilliance that the lender can put his/her trust in you.
Put forth the terms that best serves your business, its needs and yields maximum benefit for you. You can opt for lump sum clearances or go for installments; just make sure that whichever method you chose, does not in turn, jeopardize your business’ growth as well as integrity.
Should a need arise: arrangements could be made through fast capital so as to avoid any potential problems from surfacing. Loans, if serve the purpose, can benefit your startup in the long run.
Better Payment Collection Methods
Do not just sit back and wait for your clients to come and pay you as and when they feel. You do not rely on courtesy in the business world or even the word of mouth. We strongly advise on crafting relevant paperwork or contracts to make sure payments are being made on time.
You just cannot afford delay in payments when you are a startup. Instead draw out proper payment terms and schedule to ensure a smooth cash flow.
Again, proper records should be maintained to keep track of which client has paid and which has not. In addition to this, regular reminders should be sent out to ensure compliance with the set terms of payment.
Nowadays it is recommended to make use of the method of online fund transfer considering that we are living in an era of digitization. It is hassle-free, saves a lot of time and is simply all about a few clicks.
Our Word
The key to keeping maximum working capital available lies in prioritizing and balancing the spending in combination with timely obligations. If you are wise enough and make the right decisions you can ensure a consistent availability of working capital for your business. Hope our tips will help you run your business in a more productive and efficient manner.
