There’s a lot that goes when it comes to being a business owner. Aside from the usual challenges brought about by the competition, you also have to worry about internal and operational expenses for your business as well. This is one of the reasons why having a good working capital is a must for any business owner.
Before we dive deep into how you can secure a good working capital for your business, let’s first talk about what it is.
Also known as net working capital or NWC, working capital is the difference between a businesses’ current assets and its current liabilities. Current assets include cash, accounts receivable, and even inventories of raw and finished goods. On the other hand, current liabilities include accounts payable.
Working capital is basically the cash that the company can use to operate on a daily basis. Obviously, businesses should have a good working capital. Low working capital means they have less to work with, while high working capital isn’t also good as it could point to poor management of assets.
Regardless, a decent amount of working capital is necessary for all businesses. Here are a few tips on how it can be secured.
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Secure Funding From Investors
One of the best ways to secure working capital is by finding people who could be interested in investing in your company. This is a great way to do so because you are basically engaging in a mutual contract between your company and people who are also interested in your growth.
There are many ways to reach out to investors and the best of which are online platforms which give you direct access to investors of all sorts. These include those who are interested in startups and even those who are interested in business that have already taken off but are yet to reach their max potential.
Getting funded by investors is also a good idea because this is usually a mutual relationship. If they provide you with working capital finance they do so because they expect your business to grow as well. Some investors will ask for their funds with a bit of interest in return. Others will ask for equity instead.
When securing funding from investors, make sure to transact with them on authorized platforms only. Moreover, it’s best to talk with them through a secure contract as well. Make sure to read the agreement through and through so that you have an understanding of what they expect in return.
This is a traditional and tested way of securing working capital. It has been around for years now and many business owners rely on this type of funding for their business.
Secure A Bank Loan
Another traditional and often favorite way to secure working capital is by simply securing a bank loan. What makes this a favorite is that it is one of the most secure ways to get funding for your capital needs. The problem though lies within substantial interest rates as well as application processes which can be long and arduous at times.
When securing funding from a bank, your business is going to be checked thoroughly. The banks want to ensure themselves that you have the capacity to pay back the loan eventually.
As for the interest rates, you are looking at an average of around 5% per annum at the very least. While the application process has been made a lot easier over the last couple of years, most people can’t escape the high-interest rates that are binded with bank loans.
As such, it’s important that you ensure yourself that you’ll be able to pay back the bank loan in the future.
Launch A Crowdfunding Campaign
By now, you probably know what crowdfunding is. It has helped launch countless amazing products and services worldwide. If you don’t understand what crowdfunding is, the best way to describe it is that you launch a campaign through which people can invest their money into you.
This doesn’t necessarily involve investors of big shot finances. In most cases, crowdfunding is a deal between up-and-coming businesses and interested private individuals. Some crowdfunding campaigns reward investors – also called as backers, with exclusive items related to their business.
However, keep in mind that crowdfunding is usually best reserved for businesses that are just in the start-up phase. If you are already operating for a long time and you are hoping to get funding through this platform, it’s best to look elsewhere first because it might be harder for you to get funding through this method.
If your business is interesting enough, you can definitely secure funding from people. When launching a campaign, make sure to launch on the appropriate platform. Also try to present your business as great as possible so that people can see why investing in your business is a good idea.
Remember, standing out is the key as you’ll be competing with thousands of other campaigns.
Get Funding From Friends And Family
You don’t always have to look far if you want to secure a good working capital for your business. Most business owners end up securing working capital from their friends and family and this is not a bad idea too. Aside from the fact that you’re dealing with someone you trust, they don’t often ask for interest too.
When you get funding from your family or friends, it’s very important that you pay it off. The last thing you’d want is ruining your relationship with your friends and family because of money. Give them a set date on when you can pay it back. Ask them if it’s possible that you pay off the debt by installment so that it doesn’t feel too heavy on your wallet.
Every business needs a working capital to operate properly. With so many options available, there’s sure to be a way for you to get working capital for your business. Just make sure to not bite off more than you can chew when getting working capital as you wouldn’t want to be piled under a mountain of debt just for your business.