When it comes to working capital, most wan- to-be business owners know they need it, but they are not sure how to use it. Mishandled, it can become the very thing that sinks the ship. Proper management of working capital is essential to success, and handling it well starts before the funds are even received.
Have a Plan
Having a plan for working capital is the no. 1 way to keep it working for you. When you apply for the loan, you should already have a plan. In fact, having a plan, or not, could make all the difference is whether or not you even get the funds. A budget is part of a well written, executable business plan anyway. Are you going to use it for rent? Repairs? Inventory? Having a plan for working capital loans is necessary.
Investment vs. Expense
You have a choice of how to spend your money. Typically these choices fall into one of two categories, investments or expenses. In general, to the extent possible, any debt should be used in a way that will profit the company, thus by definition being an investment. Expenses, on the other hand, should be paid, to the extent possible, from cash flow from profits. That said, expenses must be paid and investments are not a necessary expense, so the means to pay the expenses in another way must exist for this to work.
Debt should not be used to service debt. The exception to this is consolidation or refinancing, but this is another type of loan altogether. Working capital should not be used to pay debt if possible.
Stay on Top of It
A vital piece to keeping working capital working is to stay on top of it. Track the spending to be certain it is being used in the most effective and efficient way possible.
When you are ready to look for working capital loans, Biz2Credit is here to help. Our network can help clients find just the financing products they need. Visit Biz2Credit today to find out more.