Determining how much working capital you need to run your company does not follow a clear formula, but understanding the daily, weekly, and monthly costs of running your business will help you to make that determination for yourself.
One of the major contributors to your operating costs is likely to be inventory. Customers respond to full shelves and racks, and when they see businesses brimming with new offerings they are much more likely to buy. Keeping your inventory stocked is an investment that delivers a variety of returns, including happy, repeat customers. Shirking that responsibility may have serious ramifications, so it is important that business owners weigh the value of a fully stocked inventory heavily. Additionally, however, sellers must be smart buyers as well. Maintain your inventory in a way that guarantees your stock does not become old and obscure.
Another serious operating cost is employee wages. Keeping your business appropriately staffed is crucial to its success. A tried and true business saying is, “If you have time to lean, you have time to clean, too.” Never hire so many employees that leaning becomes the norm.
Other overhead includes rent, utilities, and other routine payouts. A good rule of thumb is that the amount of working capital you need relates to the amount of money required to support your business for at least six months. Essentially, working capital corresponds to the amount of money it takes to keep your company operational until it begins to turn a profit. Once profits become reality, those monies will help contribute to the continued operations of your business, helping to establish its longevity and success.
There are several resources that may help entrepreneurs acquire the working capital they need to get their business off the ground. First and foremost, many people hopeful to lead their own business consider turning to family and friends for loans and investments. While it has long been said by many that business and personal lives should not mix, many business owners find their social groups very interested in helping them to launch their company. As with any other loan type, great care should be taken to pay make the financial assistance in a timely and respectful manner. In the case of peer loans for working capital or any other reason, what lays on the line may seem smaller than what looms with bank loans, but there is often something much more significant to lose should the agreement fail.
Banks and other financial institutions offer a several loan types that may fit your working capital needs. Educating yourself regarding their terms and conditions will help you to make wise decisions before signing.