How Manufacturing Businesses can Create a Working Capital Plan
If your business revolves around manufacturing, you’ll understand the importance of having working capital on hand. There might be an unforeseen increase in demand, you could have normal seasonal demand spikes, or the opportunity may come up for you to make a real savings through a volume discount. All of these scenarios call for having available working capital, and if you don’t have it, you’ll miss out on some important business opportunities. Here’s how you can plan for having working capital on hand when you need it.
To be prepared for seasonal increases, prepare both a sales forecast and a cash flow forecast to see how the two match up at holiday time. When you know well in advance what your cash status projects to during holiday season, you won’t get caught off-guard, and you may even have time to react to any projected cash shortfalls.
Manage your receivables
To have a better chance for maintaining working capital when you need it, make sure you invoice customers at the earliest opportunity. If you wait a week or two, that will delay payments, and you will have been the cause of it. You might also try to renegotiate with customers for faster payments, by offering discounts for prompt action.
Find ways of cutting costs when you need to raise working capital. Some of these might be short-term initiatives, like negotiating more favorable terms with suppliers, and some may be more in the way of long-term processes that bear cost-saving fruit. Lean manufacturing principles can garner huge savings in costs by reducing waste, but be prepared to take some time with the implementation of this philosophy.
Find new sources of working capital
Regardless of whether your cash flow is adequate at present or not, it’s sound business practice to research other possibilities for working capital. If you haven’t looked into the forms of financing made available by alternative lenders, this might be an avenue worth pursuing for your business. Most businesses will qualify for some form of alternative financing, and it can be a great stopgap measure when sudden increases in demand arise. Speritas Capital Partners can help. For more information contact us today.