You have choices in sourcing working capital finance and in business credit solutions.
It’s all about understanding the problem and knowing where to look for solutions, so let’s look at these two main problems. Understanding the problem is not something you should read, because as a business owner and financial manager in Canada you live with a ‘crisis’ or ‘challenge’ of capital every day.
Working capital is best understood as your operational capital, and you have an investment in receivables, inventory, that’s where your investment is currently located, and your goal is to monetize those assets in the best possible way.
Textbook definitions don’t really help us – our accountants and analysts ask us to get into the balance sheet, reduce current liabilities from current assets, and, voila! That’s working capital!
One of the biggest contradictions that you need to understand is the problem of assets, profits, liquidity, and turnover. Once you master the concept of working capital and, more importantly, the solution starts to make more sense.
We hate the definition of the textbook we mean, but we will agree that the calculations we share must be positive – you do need more inventory and accounts receivable combined as measured by debt and other short-term obligations. How do you manage your short-term A / R assets and inventory is the challenge.
Many business owners quickly realize that one of their obligations, namely debt, is actually a large asset in measuring capital and managing it. That’s because if you can continue to turn your inventory into A / R into cash, and slow down your debt to reach working capital progress.
Is there a perfect way to measure your working capital needs and progress? One method is to check the ‘cash conversion cycle’ – This is a tool that you …Read More