Business growth and stability – it’s what every small business owner strives to achieve and it takes capital to reach that goal. Maintaining sufficient working capital is a constant struggle for many small businesses, making it difficult to invest in growth. There are ways a business owner can increase capital as well as a variety of working capital solutions available through alternative finance providers. However, before investing in a growth strategy, it’s important to determine your current level of working capital and how much more you’ll need to fuel business growth.
Working capital is defined as a company’s current assets minus its current liabilities, found on their balance sheet. Cash on hand, accounts receivable, inventory and any short-term company investments will be listed as assets. Accrued expenses such as accounts payable, payroll, short term loans, and interest are listed as liabilities. Positive working capital means you have enough cash or liquid assets to cover all accrued expenses. That doesn’t necessarily mean there is enough capital to kickstart business growth. So how much is enough?
There is a basic formula that can help a business owner figure out their current level of working capital and where they need to be to start investing in growth. The first step is to determine the company’s current ratio which is their current assets divided by current liabilities. A ratio less than one means the company’s liabilities are costing them more than they are making. A ratio of more than 2 is considered the target ratio, indicating that your current assets are at least twice your current liabilities providing positive working capital. This ratio can vary by industry.
Exactly how much capital is needed for growth depends on the target ratio and how quickly you want that growth to happen. There are online working capital calculators such as SurePayroll that can help you figure that out.
There are internal working capital solutions that can help increase profits, build capital and fund growth. Start by taking a long hard look at your liabilities and see where you can reduce expenses. Review your payroll. Are you paying for employees to work overtime? It may be more cost-effective to hire temporary or part-time staff rather than pay the higher overtime hourly rate. Another way to reduce expenses is to refinance debt to get a lower interest rate or smaller payments. This can be done with high-interest rate credit cards or bank lines of credit.
Closely monitor your inventory levels to make sure you aren’t keeping more on hand that you need. The value of inventory can fluctuate over time, potentially leaving it worth less than what it costs. Find a supplier that can provide you with inventory quickly when you need it, allowing you to sell it and increase your profits while reducing your expenses.
Don’t overlook the value of assets that you’re no longer using. Equipment that has become obsolete for your company can be sold. Other businesses may be able to use it or in some cases, the materials or components that make up the equipment may be valuable such as scrap metal. Selling such equipment will increase your working capital.
Consider re-evaluating supplier contracts and see if you can negotiate with them to get lower prices. If they won’t budge, you can look for alternative suppliers who offer similar products at better prices. All of these methods can help improve your working capital.
Have you reduced liabilities on your balance sheet, converted unused assets into cash and creating positive working capital but still need a little more capital to grow your business? CapFlow Funding Group offers working capital solutions to provide the funding you need to grow your business. We work with business owners across various industries to find the best working capital solutions to their businesses on track. Our team will work tirelessly to see you through to success. Contact us today!
CapFlLandscaping contractors, just like any other seasonal business can struggle during the off-season trying to meet payroll, retain their core staff and repair or replace damaged equipment. This can be especially true for commercial landscapers who usually have to wait 30 to 60 or even 90 days to receive payment. This means even though the invoices were issued at the height of the busy season, a landscaping contractor can be well into the slow season before they start receiving those payments. Invoice factoring financing can help them maintain steady cash flow throughout the off-season.
With invoice factoring financing, you sell unpaid invoices to a factoring provider, referred to as the factor, at a discounted rate. Those invoices are then owed to the factor. Once the invoices are paid, the factor will send the business owner the remaining balance minus a small fee
At the end of a busy landscaping season, working capital levels are high. As the workload starts to taper off, so does the cash flow. It is not uncommon for landscaping contractors to have to tap into that capital to keep up with operating expenses in the off-season. A lack of sufficient working capital can leave a business vulnerable in the case of an emergency or a business opportunity that requires additional staff or new equipment.
Sufficient working capital is equally important as the off-season ends and landscaping contractors start gearing up for the busy season. Equipment may need to be repaired or replaced and with the influx of work. Additional staff will need to be hired. Covering these expenses can be difficult if a business owner has been chipping away that capital all winter. Invoice factoring allows for the preservation of working capital and helps keep the revenue stream flowing without any major disruption.
Not only can invoice factoring financing can be the perfect solution to keep your landscaping business on track all year long but it also provides benefits that traditional business loans don’t.
Access to immediate cash. Applying for a traditional business loan can take weeks or longer. With invoice factoring financing, you can typically be approved and receive funds in days instead of weeks. Factoring eliminates waiting for invoices to be paid. Or for a bank loan to be approved and allows you to get the cash you need now.
Perfect credit not required. With invoice factoring, less than perfect credit isn’t a problem. Approval is based on the creditworthiness of the customers whose invoices you submit for factoring. When choosing invoices to factor, it’s important to pick those issued to customers with a consistent payment history.
Avoid taking on additional debt. Invoice factoring is not a loan so it will not add additional debt to your balance sheet. Factoring simply gives you quick access to funds that are already owed to you. It also allows you to keep other funding options open should you need them.
Fund business growth. Whenever a business opportunity comes along, a business owner needs to have the cash on hand to take advantage of it. Whether it’s new equipment or additional business, you need to have sufficient working capital to invest in that opportunity and promote business growth.
If you’re a commercial landscaping contractor who needs a little help surviving the off-season, CapFlow Funding Group may be able to help. Let’s talk. We specialize in factoring. CapFlow will work with you to find the best funding solution to provide your business with immediate working capital. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help grow your small business.
