Having a tough time keeping up with your company’s recurring expenses lately? You might need to reevaluate your current ratio of working capital. Though you might not be very familiar with the technical term itself, having enough working capital essentially means keeping adequate cash around to cover necessary expenses. Ideally, you would have at least twice the amount of money in hand as you do debts and other liabilities. If your ratio is way off, you can still improve it by raising the amount of capital your company has in three simple steps.
1. Review Your Current Expenses and Cut Back Where Possible
Perhaps the easiest way to quickly increase the amount of available cash your company has is to get rid of some expenses. Take the time to carefully sift through your current bills and figure out whether it would be possible to reduce or even eliminate several. For example, you may be able to move locations for cheaper rent, or cut back on ineffective marketing strategies. If you only need a temporary boost, you could try cutting back just for a month and seeing how it affects the budget.
2. Make Sure Your Accounts Receivable Are Being Collected on Time Regularly
A significant problem some companies run into is late-paying customers hurting expected cash inflow. If your accounts receivable are not being paid on time, you need to make it a priority to collect what’s owed to you. You can start by discussing the issue frankly with repeat customers, but if a bill is significantly overdue, you may want to consider going ahead and sending it to collections as well. Once you receive your payments on time, you’ll have more available capital to work with.
3. Talk With a Tax Professional About Your Current Deductions
One area where working with a professional may help is your tax deductions. If you’re not currently working with a specialized accountant, for example, you could be missing out on key business deductions that could potentially help lower your company’s overall tax burden. Though you will have to budget for an accountant fee, the savings could be worth it!
Not having the proper amount of working capital available can mean struggling to both pay off current company liabilities and still cover basic, recurring expenses. Even if your ratio is far from ideal at the moment, you can thankfully still raise your capital over time by following this three-step plan and taking a closer look at your business finances.