Working capital is an important factor to be in control of as a business owner. Read about the advantages by optimizing the company’s liquidity and cash flow.
- Seasonal changes in cash flow
- Suddenly increased costs or financial obligations
- Financing of large purchases and supplier discounts
- Covering project related expenditures
- Improvement of balance sheet before investment rounds
1. Solve seasonal changes in cash flow
Many companies experience seasonal fluctuations of their earnings, which in turn is reflected in similar variations in the cash flow. In order to keep acting in times with low cash flow, and to be able to maintain one’s operations or even prepare for an upcoming peak season, the working capital sometimes needs to be raised. Companies that are able to release capital with short notice have a better possibility of handling seasonal changes and can optimize the planning of growth and future investments.
2. Cover suddenly raised costs or financial obligations
Sometimes unexpected sudden additional costs happen for raw materials and supplies. As a consequence of this, you as a buyer, may have to raise considerably more capital in order to finance your supply purchases, components or other.
This is not a phenomenon that is specific to a certain field. Almost all companies have, at some point, experienced times when additional working capital is needed to finance commitments towards suppliers while waiting for payments from the clients. To rely on handling the working capital in time and being able to release further capital makes it possible for a company to keep operations going even in times of demanding financial commitments.
3. Financing mass purchases and supplier discounts
An increase of working capital can create value in many ways. With larger purchases or quick acquisition of supplies you, as a buyer, can often negotiate special terms or benefit from advantageous supplier- or cash discounts. To look over your company’s liquidity and handling of working capital can open many profitable business opportunities.
4. Covering project related expenditures
Especially newly started companies can find it challenging to cover project related expenditures. You are in a growth phase and are often depending on freelancers and external agencies as additional resources to help finishing projects.
These resources usually represent a high financial cost that may not be easy to solve. Instead of falling back on founder invested capital, a solution may be to release restricted capital on short term.
5. Improvement of balance sheet before investment rounds
Investments in promising business models and the gathering of risk capital is often the be-all and end-all for startups. To receive necessary investment grants for company growth, as well as being able to implement a larger financing round, newly started companies need to know their numbers but also how to optimize them when needed.
On top of classic KPIs for customer acquisition, potential investors will take a closer look at financial key figures, with the balance sheet always being one of them. Beyond burn rate and sales figures it’s extra important to be able to show a strong cash flow and prove the ability to counteract liquidity issues in advance.
Want to know more about how you can improve working capital?
Invoier provides solutions for company financing and has developed Sweden’s only marketplace for invoices. The purpose is to enable market-based pricing for financing and growth of small- and medium sized businesses, as well as a new type of investors get access to this market. The technical base of the offer consists of a unique AI engine that will anticipate both if and when an invoice will be paid. Invoier was founded in 2018 in Stockholm and is financed by the EU and KTH and operates with permission of the Swedish Financial Supervisory Authority and the Swedish Authority for Privacy Protection. Read more about Invoier Read more about Invoier