India has been the fastest growing economic country in the world, with an estimated GDP growth of 7.2% in 2017-2018 and a growth of 7% in 2018-2019. India has also managed to maintain its position as the 3rd largest start-up base country in the world with an approximation of 4750 technology start-ups.
These Small and Medium Enterprises (SMEs) are one of the significant reasons behind the country’s growth. However, you cannot ignore the fact that every SME requires working capital to function well. Thus there are specific things you should know behind working capital management.
What is working capital management?
Working capital management is a sum of techniques and practises applied to utilisation working capital including all its functions. It also includes keeping track on the working capital or the current capital and current asset of the business. It deals with the implementation of credit by keeping the cash levels and stock in control. The concept behind working capital management is the assessment of the financial and operational conditions of the company. Proper management of the capital gears up the working capital cycle. There are several benefits associated with properly managing the capital.
Benefits of working capital management
- Enhances the profit and financial condition-
A well-performed working capital management is vital operational efficiency and proper inventory management. The significant part of the management of capital including p[roper tracking of receivables from the market. A well-performed cash allocation invites the chance of further investments or repayment of any existing short-term debts. Thus, allowing the business to be financially secure and capable of avoiding any legal issues that could have occurred due to the non-availability of funds.
- Ensures cash flow-
To run a business smoothly, you need a proper availability of cash. Once you invest in making products, it is evident that you will have to wait for it to be sold. Thus, ending up in cash crunches and a decrease in your working capital. Properly managing your capitals would help you avoid these cash crunches and will keep an adequate cash flow to help your organisation run smoothly.
- Ensures smooth operations-
Working capital management includes analysis of multiple ratios of variables related to the working capital. Analytical pointers include receivables turnover ratio, quick ratio, capital ratio and many more. This calculation of ratios provides information to the managers who can execute the business operation in an effective way. A well-performed working capital management avoids future obstacles in the process of the organisation.
- Adds value to your organisation-
As mentioned above, working capital strengthens the financial situation and operation of the organisation. You can follow some working capital management tips for trading business, like managing your short-term needs and balancing between business expansion and receivables. Well-maintained working capital helps your organisation to be the best among your competitors. Also, you will be able to gain respect from the market, which in turn, will add value to your company and also increase customer outreach.
However, there can be times where you can face non-availability of cash, which can weaken the performance of the organisation. An easy way to deal with such problems is to avail a business loan and fund the crisis.
You can request your lender to provide you with different quotations that would feed your need. Leading financial institutions such as Bajaj Finserv offers attractive interest rates, no-charge pre-payment and foreclosure as well as many other borrower-friendly features on these loans.
Bajaj Finserv also provides pre-approved offers to make the application process smooth and quick. You can check your pre-approved offer by providing details like your phone number and name. These offers are available on secured loans like home loans and unsecured loans like personal loans and business loans.
Well-performed working capital management is a tool to properly analyse the current assets and liabilities of your company. Although it comes with a few disadvantages like wrong interpretations, etc. however, no organisation can run smoothly if you do not know how to manage your available funds.