The traditional definition of working capital:
assets or liabilities that cycle through the business continually to create your business activity, sales, profit.
Cash, receivables, payables, inventory.
But is your capital actually working in your business? Working to make you successful?
If it is working what is working for you?
If the cash is just in your bank account you are at least certain you can pay your people and your bills. But if it isn’t moving in and out is it working?
Is the cash working as hard as you and the team?
Receivables not collected … bills paid faster than you collect from your customers … not working!
And there is also another item most people ignore ..
Accountants don’t even look at it when they prepare cash forecast statements.
What may that be?
All that value you have tied-up in your capital assets, your investments, … even your longer term debt …
If you keep assets you don’t use.
If you don’t manage your investments and derive a return.
If you don’t properly utilize that debt funding to do more, reach further, multiply the volume of cash before you have to repay it.
They are not working.
Are they perhaps a millstone instead pulling you back?
Keeping all assets working keeps the business vibrant and growing.
Have you considered that when your team is bored, not inspired. Not excited to come in every day. The low productivity drags the business backwards?
The same for all of your other assets.
- If they sit idle in your plant.
- Rusting in the yard.
- Inventory not used for many month, or years, but kept “in case” you require it.
They are all “holding” cash that could be better used
- To support operations.
- To buy a service you urgently need.
- To provide that little “free cash” you need to afford someone with ideas on tweaks that will get you back on the road to growth.
- To survive that economic downturn.
- To research that new product.