When you’re running a small business, your focus may often be on doing what you need to to get through the day and to keep your business financially afloat. While this is understandable, when your focus is too limited you can easily neglect other things that can impact your business long term, like making sure that you are managing your working capital properly.

What Is Working Capital?

Understanding working capital may seem difficult to some, but in reality it is very simple. Working capital is the difference between your company’s assets, like sales and goods, and it’s liabilities, like utility bills or other forms of overhead. Some may think that working capital is the same as profits. While it can include your profits, it is different in that you must subtract your liabilities to have a clear picture of what your actual working capital is.

How Do You Manage It Properly?

Once you have a clear understanding of what your working capital is, you need to start taking steps to manage it properly. One of the first things you should do when it comes to your working capital is make sure that you have good inventory systems in place. Some have issues with getting a clear picture of their working capital, or with keeping it in a positive state simply because they do not track their inventory well, and have no idea what their assets truly are.

Another thing that it is important to do when working on boosting your working capital is to improve your collections process. The more funds that your business is owed, the weaker your financial state is. Customers and clients with unpaid bills can cause a lot of issues for your business, and could ultimately contribute to it failing. By making sure that you have a solid receivables system, and making sure that bills are paid to you, you can help maintain a more positive working capital state.

Along with making sure that others are paying their debts to you, it is also important to make sure that you are paying your debts to others in a timely fashion as well. The more that you can avoid late fees and other charges, the better your business’s financial status will be.

Some Final Thoughts

Running a business can be a lot of work, and it can be easy to get caught up in day to day tasks. However, there can be many benefits to taking time to focus on other aspects of your business that can impact it long term, like your working capital.