Having enough working capital is going to be important to have the business you need to have the life you want, so where do you get it from?
It doesn’t always have to come from more borrowing, by looking at the way you run your business there may be working capital locked up that can be released.
An example with numbers
Accountants love numbers! So here is a simple example to show how making changes to the way you run your business, could release working capital to grow your business.
|Cost of sales|
|Closing stock||-62,500||Equivalent to three months sales|
Debtor days are 65 days sales, giving a figure of £89,041 for amounts owed by customers (500,000 x 65/365)
Change 1 – Speeding up customer payments
Reduce debtor days to 45; this will bring debtors down to £61,643 from £89,041, increasing cash in your bank account by £27,398
Change 2 – Cutting the stock you hold
Reduce the amount of stock held from 3 months sales to 1.5 months sales; this will bring the stock figure down to £31,250, releasing cash of £31,250
Combined effect of improved cash-flow £58,648.
How you make the changes will depend on your business, but often we have seen there is scope to making changes to the way things are done, so you can unlock cash for your business, which means you may not need such a big overdraft after all. What will you do with that cash?