Working capital is a term that directly refers to a company’s ability to pay off short-term debts and sustain business-as-usual operations on a daily basis. It’s important to understand the fundamentals of working capital needs as it relates to your own business. Working capital can tell you a lot about business efficiency, productivity, and management.
Working Capital Basics
Working capital is used to determine a business’ ability to endure unexpected financial hardships. Though there are exceptions, having negative working capital or a “working capital deficit” generally indicates cash flow problems that could render a business unable to cover all of its expenses. On the other hand, positive working capital typically means a business has enough cash flow to not only pay its debts but also have a cushion to expand and grow. Paying attention to your working capital needs is incredibly important to running a successful business.
Assets vs. Liabilities
Working capital can be calculated by subtracting your “current liabilities” from its “current assets.” A company’s assets can be defined as any item owned or controlled that business derives economic value from. An asset is considered “current” if an asset can be used or if a business owner can liquidate its value into cash in the span of one year. Examples of assets are prepaid bills, buildings, equipment, accounts receivable, inventory, supplies, etc. Any and all financial responsibilities of a business are considered to be liabilities. These responsibilities include but are not limited to: salaries and wages, income tax, loans, rent/mortgages, etc. Similar to assets, liabilities are “current” when expected to be paid back within the year.
Downsides of Traditional Solutions to Working Capital Needs
Ignoring your working capital needs can lead to cash flow problems. To fix this, business owners often run to the bank hoping to open a line of credit, to be approved for a loan, or to even be granted a cash advance. However, traditional solutions such as these come with several disadvantages – the most frustrating being the wait time and high credit standards. For a business that needs an influx of cash, time is of the essence, and finding traditional financing can be a long and drawn-out process.
Getting approved for a bank loan is not only exhausting but the amount of time between applying for a loan, getting approved, and receiving the necessary funds could further damage an already fragile business. In addition to longer wait times for traditional funding, high credit standards can also be an obstacle for small business owners. Luckily, these methods are no longer the only programs that will meet your working capital needs. There are several alternative finance options available to those that traditional institutions leave out.
Alternative Finance Options with CFG Merchant Solutions
CFG Merchant Solutions believes in small business owners. We want entrepreneurs to succeed, which is why we offer various alternative solutions to serve your working capital needs. We provide the following financing options to small and mid-sized businesses:
Small Business Advance: This option is for businesses that are unable to qualify for a bank loan. Small business advances can be extremely beneficial for businesses with a short or less than perfect credit history.
Merchant Cash Advance: Though similar to a small business advance, merchant cash advances are a fantastic resource for companies whose revenue is primarily made through credit cards. Flexibility is an advantage of a merchant cash advance since repayment comes from a percentage of the daily credit card sales.
Invoice Factoring: Another alternative finance option to meet your working capital needs is invoice factoring. This program allows a business to quickly and efficiently liquidate its accounts receivable for an influx of cash without having to spend time and energy making collections calls.
Purchase Order Funding: Funding purchase orders is incredibly important in order to attract new customers and retain repeat business. Purchase order funding is used specifically to purchase inventory and make it available to customers to purchase.
Equipment Finance: New equipment is often necessary for the growth and expansion of a business. However, purchasing new equipment can be expensive. Equipment financing is helpful because this type of funding gives a company the ability to purchase or lease the equipment they need without having to take on its full financial burden at once.
Having trouble satisfying your working capital needs with traditional methods? Don’t hesitate – contact us today to find out which alternative financing option would work best for your business!