“What does your working capital formula tell you…”

Working capital is a measure of both a company’s operational efficiency and its short-term financial health.

The working capital ratio (current assets/current liabilities)…

And current ratio indicates whether a company has enough short-term assets to cover its short-term debt.

Any idea why working capital formula is important to retailers?

And what exactly is a working capital loan?

A business’ working capital is calculated by deducting its current liabilities from its current assets…

And is used as a way to measure a business’ efficiency.

Including short-term financial health.

It’s basically how much free cash a business has on hand.

How a business can deal with the day-to-day operational costs…

A working capital loan is a loan.

The purpose is to cover everyday operations of a business.

Working capital loans aren’t used for:

• Investments
• Expansions
• Long-term asset purchases

It’s for short-term business operations from accounts payable and wages.

Businesses in high seasonality or cyclical sales cycles often have periods of extremely high sales activity followed by quieter ones.

It’s not uncommon for a business to take out working capital loans during these slower periods of reduced business activity.

The most common cause of small business failure isn’t low sales…

In fact, it’s a lack of working capital.

Working capital refers to cash available…

Money to use today for the operational side of your business.

Cash flow it is a fact of business right?

The incoming and outgoing cash can be independent to one another…

The working capital cycle refers to time between paying for goods supplied.

And payment to you from your customers after the sale.

What if we lived in the ideal world?

The working capital cycle would be a matter of days…

We both know, it can extend for weeks or even months.

In general, retailers don’t offer terms to their customers…

And payment is received before goods are supplied.

This doesn’t necessarily mean its a short working capital cycle does it?

In order to make a sale the retailer needs to have stock…

And unless goods are on consignment…

The stock needs to be paid for prior to the sale.

Retailers are also exposed to seasonality.

And seasonality requires additional working capital.

Ever fell short to fund inventory in anticipation of Christmas sales?

Even retailers which aren’t exposed to seasonal swings…

They are still exposed to cyclical changes whereby demand spikes.

Let’s consider the following working capital example:

A company is releasing a brand new product to the market…

And the expected demand is out of this world.

You are fortunate your business has secured its status as a supplier.

And there are 20,000 units available for you to purchase.

Now, the margins are more than great.

And you know it will take no more than 3-4 weeks to move all the stock.

The catch is the wholesaler is only willing to offer you terms of 7 days.

You can only afford 5,000 units within payment terms…

And remaining units will be sold to another retailer unless you commit.

Why would you happily forfeit the remaining units?

Given the margins are extra fat and healthy…

You’d look for a way to fund the additional stock, would you agree?

Fortunately, there is an easy working capital formula available to you…

Would you only consider it if costs of finance outweighed return on investment?

Now, what if you could get the additional working capital…faster?

The reality…

It’s rare for retail business to have cash reserves to fund spikes in demand.

Matter of fact, whether they be seasonal or otherwise.

That’s why you want finance to fuel your business:

Working capital loans are set-up to fund precisely why you need money.

What if you’re wanting money for:

• Unexpected costs that come up (overdraft or line of credit facilities)
• Refinance your current debts (term loans)
• Getting much-needed office equipment (asset finance)

It doesn’t matter which type of loan you want…

It’s got to fit your business and work in your favour, that’s it.

We help you find those types of business loans.

Working capital loans to grow your business:

We both know your business needs money to grow, right?

The choices available to you before were limited, to say the least.

Business finance has changed…

Now the market wants to invest in small to medium-sized enterprises.

It maybe through capital raising…

Raising finance to meet your cash flow needs or equity.

Of course, there is a working capital formula available.

Wouldn’t it be better to plan ahead and know your options…

You may want to understand your working capital needs.

It could be the difference between a good business and a great business.

The speed of a working capital formula is one of its biggest benefits.

Especially to small businesses.

A working capital formula allows business owners to quickly and efficiently access finance options to cover any gaps in working capital expenditure.

A business’ cash flow can often fluctuate over short periods of time.

A working capital loan is perfect for this as it’s flexible in loan terms and funding amount.

Working capital loans are ideal for everyday business expenses:

• Salaries
• Stock
• Inventory
• Rent

Working Capital Formula In conclusion:

Working capital formula is available capital of a business.

The cash flow is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities.

Working capital is a financial metric which represents operating liquidity available to a business, organisation or any other entity.

This includes governmental entities.

Along with fixed assets such as plant and equipment…

Working capital formula is considered part of net working capital.

Working Capital Formula