working capital

Why Managing Working Capital is Important for Future Funding?

October 26, 2022 • 198 views
Author: PoonawallaFincorp Category: Business Loan

Traditionally businesses had few financing options as compared to those available to modern-day businesses. Limitations in funding pushed several businesses to operate on a small scale. Also, traditionally getting funds was time-consuming which delayed several other processes. With time, the availability of funding and time for getting funds has improved, helping entrepreneurs to focus on the core business functions.
While running a business, the entrepreneur must manage the day-to-day operation efficiently. There are times when the business requires urgent capital and managing Working Capital efficiently helps to tackle such situations. Working Capital is the readily available capital with the business to meet any short-term obligations. You can easily find out Working Capital by using the below formula:

Working Capital = Current Assets – Current liabilities

  • Current Asset: Assets that can be converted or sold within one year are termed current assets. These include stock inventory, cash and cash equivalents, accounts receivable, marketable securities, etc.
  • Current Liabilities: Liabilities that can be paid off within one year are termed current liabilities. These include income tax, accounts payable, interest payable, payroll due, payroll taxes, rental fees, short-term debts, etc.

Example Of Working Capital

For instance, a business has current assets worth Rs. 10,000 and current liabilities worth Rs. 8,000. This means the company has Working Capital worth Rs. 2,000.

What is Working Capital Management?

Working Capital Management means managing your Working Capital in such a way that current assets and current liabilities are used efficiently. Working Capital Management creates sufficient cash flow in the business to tackle any short-term financial requirements.

With constant changes in both the external and internal environment of the business, there are high chances of the requirement of additional finance to meet day-to-day obligations. The introduction of a Business Loan for Working Capital ensures that the additional assistance and requirement of the business are met on time. A Business Loan for Working Capital can be used for meeting any day-to-day operations, any short-term expenses, office renovation, paying emergency expenses, and paying expenses such as rent, and electricity bills.

Also Read: How To Calculate Net Working Capital To Know Your Business's Liquidity?

Importance of Working Capital Management 

Business expansion

Managing Working Capital helps business owners to expand their businesses with ease. Working Capital management gives the owner a clear idea about his current assets and current liabilities that can be used for the expansion of the business. Also, the same capital can be used for buying up more inventory – improving sales and profitability of the business.

Improved liquidity

The term liquidity indicates those assets that can be easily converted into cash. Having good liquidity helps entrepreneurs in dealing with any short-term payments and expenses with ease. 

Better utilisation of fixed asset 

Most of the time fixed assets remain idle due to insufficient Working Capital. There is constant depreciation that is charged on the asset. Better Working Capital management ensures that there is better asset management, which helps in the optimum utilisation of the fixed asset.

Better financing

There are several current liabilities like rent payable, interest payable, and short-term debt that need to be fulfilled on time. Insufficient Working Capital puts a hold on the expenses payable. Better Working Capital management ensures that all the current liabilities are fulfilled on time. Timely payment helps in increasing the creditworthiness of the business owner. Furthermore, paying all the debt on time improves the credit score. This results in the overall improvement in the financing of the business.

How To Apply for a Working Capital Business Loan?

You can apply for a Business Loan for Working Capital with Poonawalla Fincorp by following the below steps:

  • Step 1: Visit the official website of Poonawalla Fincorp 
  • Step 2: Click on the Business Loan and go to Business Loan for Working Capital section
  • Step 3: Check the eligibility criteria for Business Loan for Working Capital section
  • Step 4: Click on ‘Apply Now’ under the Business Loan for Working Capital section
  • Step 5: Executive will get in touch with you for the application process. 

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