A Strategy for Managing your Company’s Working Capital
By Jeff Bardos, CEO, Speritas Capital Partners (Jeff’s Bio)
February 20, 2019 – Greenwich, Connecticut
Managing working capital is hard work. I’ve recently talked to several sizable companies that were strapped for cash and had turned to the merchant cash advance space. They solved their immediate problem, but generated larger refinancing problems in just a few months. I frequently see this kind of short-term, short-sighted approach to managing working capital.
The better approach to managing and expanding your working capital is to take a strategic approach. Focus not just on solving the immediate issue but also on the growth of the company over time.
What is Working Capital?
Working capital refers to the short-term assets available to cover your daily cash flow needs. Cash, short-term assets that can be liquidated easily, and undrawn lines of credit are the most common forms of working capital.
We encourage our clients to focus on three elements of working capital management:
1. Develop thoughtful financial projections.
Develop thoughtful financial projections that provide details on the growth of assets, paying close attention to assets that could be used as collateral. What do your accounts receivable look like 12 and 24 months out? Are they diversified and strong enough to support a factoring or accounts receivable line of credit? How does the value of your inventory, machinery and equipment grow over time?
2. Get your financial books in order.
Having accurate financial records about the age of your receivables and payables, the value of your inventory and the net book value of your equipment will make financing discussions much easier.
3. Analyze your cash conversion cycle.
Analyze your cash conversion cycle and look for ways to reduce the time it takes to turn production and inventory into customer payments.
Are you getting the best terms from your suppliers? Are you actively managing collections? Accounts receivable financing, purchase order financing and asset-backed lines of credit are financing techniques that can help mitigate long cash conversion cycles.
Reaping the Rewards of Good Planning
Once a company has taken these recommended steps, they’re in a position to assess what financing options make the most strategic sense. They can avoid short-term financing traps, minimize the amount of financing needed, and are better positioned for the long-term.
About the Author
Jeff Bardos, CEO, Speritas Capital Partners
Jeff has over 25 years of experience in the financial services industry. After graduating from the Columbia Business School, he joined the New York Federal Reserve Bank as a senior staff member in Bank Supervision, leading the Bank Analysis department. From the nation’s central bank, Jeff moved into the private sector, working at senior levels in commercial banking, retail banking and risk management. He has also played senior founding roles in several start-ups. Learn more about Jeff.
CEO Speritas Capital Partners
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Speritas Capital Partners specializes in difficult credit, collateral and cash flow situations and we never take upfront fees.
Speritas Capital Partners works with our clients to assess their working capital financing solutions and work with them through the closing of the financing. We can arrange $100,000 – $25 million purchase order financing lines, accounts receivable lines and broader asset-backed lines of credit for larger companies.