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Banks Are Great Resources for Working Capital Management

As a business owner, you can never have too many financial resources. You may have the accountant that you take your company tax filings to every year, but you also have a network of other accountants that you talk to and get advice from on a regular basis. The more resources you have, the more options that will be available to you when you need funding. A truly useful resource is one that not only offers you the basic services that you need, but also goes beyond the basic services and has tools that you can use to run your business more efficiently.

Working capital is something that every business needs to have on hand, but it can come in many forms. Every business owner would love to have cash reserves on hand that would eliminate the need for alternative financing. But that is not always possible, which creates the need for backup funding. Some companies use corporate credit cards, which can be a smart idea when the cards have the kind of incentive programs that the company can utilize. When it comes to a dynamic working capital management partner, it is difficult to beat the financial professionals at the bank that your company does business with.

What Is Working Capital Management?

Some business owners confuse working capital with operating cash, which is easy to do since a lot of people use those terms interchangeably. Operating cash is the cash reserves that your company has on hand each day to pay vendors and use for petty cash needs. This is usually what business owners are referring to when they talk about "expense funds." Different business owners use different definitions for operating cash, which can make it even more confusing.

Working capital is the cash that a company uses to fill orders, meet payroll, pay for major purchases, and plan for growth projects. For example, a printing company that is preparing to buy an expensive new press will consider that purchase a capital purchase. It is treated differently on the company's taxes and requires significant planning to properly complete the transaction. Working capital management is the process of making sure that the company has the short-term cash it needs as well as the cash necessary to complete larger projects. It is an extremely important part of managing a company's finances.

Banks Have The Tools You Need For Working Capital Management

Managing your working capital should be a collaborative effort between your accounting department and your main source of external funding. For most companies, that main source of external funding is a commercial bank. The biggest reason for utilizing a commercial bank as your working capital resource is because a commercial bank has experience in helping companies like yours to monitor and plan their spending. A good commercial bank is going to offer you online access to your historical financial data, as well as a variety of tools for comparing the costs of bringing in more external funds as opposed to utilizing the company's cash reserves.

The tools that a bank has to offer for working capital management are more effective when the bank has experience with your company and understands the workings of your business. When a lender has experience in helping to fund your capital needs, it can create a more comprehensive set of monitoring tools that you can use to plan expenditures and make sure that your expenses are covered. Remember that working capital is the lifeblood of your daily operations while expense funds are there to take care of immediate cash issues. Utilizing working capital requires significant planning, which is why the tools offered by your bank are very helpful.

A Strong Working Capital Management Can Solve Big Financial Problems

Imagine the lump that would sit in your throat if you suddenly realized that you need to make a payroll deposit in two days and you do not have the cash reserves on hand to do so. What would you do if you promised a major vendor that he would get his payment on time and just days before you are ready to transfer the payment, you realize that you would not be able to put the funds together. These are the situations that come up when you do not engage in working capital management and bank funding can help you to avoid these kinds of situations in the short and long-term.

When you work closely with your bank on working capital management, you have a standing line of credit ready to fill in the financial gaps that a slow cash flow can leave behind. Your relationship with your bank would also allow you to apply for loans to cover your working capital needs and get those loans approved in time to make payroll and keep that primary vendor happy. Cash flow is a critical tool for any business, but every company needs a backup plan that is administered through the company's primary bank.

Working Capital Is Also Part Of Long-Term Planning As Well

It is difficult to predict when your customers will pay their bills, which makes your cash position tenuous when it comes to planning major capital purchases. While every company would love to use their own financial resources to bring in new equipment or add more warehouse space, things do not always work out that way. But these are the kinds of projects that are planned well in advance and budgeting for the capital expenditure is a big part of the planning process. Instead of wondering if you will have the cash reserves on hand to make the capital purchase, you can plan the purchase with your bank and make sure everything is done on schedule.

The other element to long-term planning with working capital is making sure that your regular capital expenses do not get disrupted by your long-term goals. By working with your bank on capital management, you can make certain that you always have the funds you need on hand to meet payroll and play vendors while planning a major growth project. You can roll out that new product on time with capital funding from your bank and still be able to pay for the company holiday party as well. When it comes to successfully running a business, the success is always found in the details. With capital management planning, the details include the activities your company is doing now, and the goals you have for projects in the future.

A health working relationship with your bank can make a big difference when it comes to managing your working capital properly. Your bank can help you to plan for those long-term projects that could make your company even more successful, while also making sure that all of your short-term financial details are taken care of as well.