Working Capital as a financier

Almost all companies, large or small, will eventually experience the need of financing their operations. To find the right source of financing is of course vitally important for any business. Depending on the industry, company set-up, ownership or financial status, financing can be more or less hard to access. However, a solution possible for all companies, is to start by looking within the company itself.  

Release capital from the balance sheet

All companies have assets on their balance sheet that can be converted into cash and used as financing. Cash that can cover expenses when credits are reduced, or that can be invested in equipment when bank loans are difficult to come by. The underlying need for financing can be both short and long-term. Either a short-term cash crunch with the risk of breaking covenants, or a long-term acquisition agenda to facilitate growthWhatever the underlying need is, to untap the potential of the balance sheet and release cash from your own operations is always a good idea. 

Facing current or future need of financing – either caused by the Corona situation or any other underlying cause – the working capital can be optimized, which will free cash rapidly and secure access to financing and a good cash position. Managing your working capital, i.e. the capital required for running your operations (Accounts Receivables, Inventory, and Accounts Payables) more efficiently, can give you just the financing needed to continue to evolve. When optimizing working capital, it is important to consider the effects on the value chain and to make sure long-term relationships with suppliers and customers are not jeopardizedGiven the current business landscape where multiple stakeholders are affected by the Corona situation, it might be even more important to ensure that the whole value chain shares the burden of working capital. This to be able to prosper together in the future. 

Secure financing for your strategic investments

Securing access to financing is key to enable your company to keep evolving in times when profits are under pressure and the overall flow of cash is reduced. It will allow you to continue with strategic investments, enforce creativity and new ideas, maintain, or even gain competitiveness while securing a solid foundation for the future. Why not utilize this optimization opportunity to secure your future financing need? Capacent has solid experience of supporting companies doing just this.  

Capacent has over the last 20 years developed a working capital management model applied in various industries, and we have performed more than 300 working capital management projects. Here are some insights: 

  • Working capital optimization is an operational initiative, not a finance project.
  • Management of working capital requires a cross-functional approach. Optimizing individual working capital components separately can endanger the supply chain and customer deliveries.
  • Securing proper governancefollow-up, and processes to support the initiative is crucial.
  • Hands-on training and individual coaching are essential in ensuring sustainable results and buy-in throughout the organization.  

Author

Marcus Ekström, Manager at Capacent_x, is specialized in Working Capital Management. Marcus has a long experience from working in and leading working capital optimization projects. The projects have been performed in a wide range of industries, such as industrial manufacturing, service organizations, process industries, and retail.

If you have any questions, contact Marcus at marcus.ekstrom@capacent.se to discuss your opportunities to achieve better working capital management.

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Read more about or other insights and resources on working capital:

How does your position in the value chain affect your working capital – and what to do about it? - A guide for Wholesalers

How your position in the value chain affects your working capital – and what to do about it? - A guide for Raw material & processing companies

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