7 Ways for Effective Capital Management

Determine needed working capital

Write one or two paragraphs describing your product or services. To be successful your content Businesses should base on the targets of the previous financial period to determine the amount of working capital. Available data set the basis for businesses to analyze differences between the plan and reality for capital mobilization planning.

Determining the amount of working capital helps businesses avoid wasting capital and limit the shortage of capital leading to interruption.

When developing a working capital plan, businesses should note a few things:

• Determine the amount of working capital based on the capital plan during the business process.
• Analyze and calculate the financial indicators of the previous period before planning working capital.
• Forecast the business situation, market fluctuations, and growth potential in the next year to make capital plans.

Determine the amount of needed working capital

Utilize stockholders' equity and working capital

Businesses can mobilize and use external capital sources from:

• Banks: Note that bank loans are additional capital, not a part of the working capital of businesses.
• Joint venture capital: A joint venture is a form of cooperation that helps businesses increase capital and learn management experience and innovative technology from others.
• Appropriation: This is the debt paid to sellers or prepaid buyers. Appropriation money is not the main working capital of the business.

Exploiting and using stockholders' equity and working capital​

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Manage revenue and limit appropriated capital

To closely monitor revenues and avoid appropriation of capital, businesses need to pay attention to:

• Closely and periodically monitor receivables, preventing them from turning into bad debts.
• Use financial measures to leverage products consumed and limit appropriated capital such as penalties for violations due to late payment, payment discounts, etc.
• Flexibly use financial measures to maintain and preserve relationships while being able to recover debts.
• Make a property insurance contract or apply sanctions in the contract when purchasing, paying in full or in advance to avoid loss or damage to the property based on the principle of "deliver in full, pay in full”

Manage revenues closely and limit appropriated capital

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Effectively use idle capital

Idle capital is money that has not been invested, there is also no specific plan for it. Idle capital does not participate in economic activities and does not bring profits to the business.

For example, if a company keeps a bank account of 1.510 million (92.6% of the capital), it has lost the opportunity to invest in other profitable financial activities. Therefore, businesses should not keep much idle money but use it effectively to increase revenue.

Use idle capital effectively

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Manage inventory and limit storage costs

If there is a loss of goods, the business will suffer huge losses, negatively affecting the business capital. A few notes to well manage inventory are:

• Strictly check input to promptly remove poor quality products, causing damage to the company.
• Conduct periodic bookkeeping to promptly provide solutions to recover capital for old stock.
• Track market fluctuations to timely adjust the import of goods

Businesses need to regularly monitor stock count and debt to quickly solve issues related to a shortage of inventory.

Accelerate working capital turnover by increasing sales efficiency

Enterprises can expand the distribution system and speed up the turnover of goods to avoid loss of capital in the following ways:

• Conduct market research, determining customer tastes to enhance consumption in markets with demand.
  
• Apply preferential policies to regular customers by giving priority to prices, delivery, or payment conditions.
  
• Strengthen cooperation relationships, marketing activities, market research, expanding consumer markets, and building a system of stores and distribution agents nationwide.
  

Accelerate working capital turnover by increasing sales efficiency​

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Focus on risk management

Enterprises should implement the following measures to prevent risks:

• Buy insurance for stock and goods in transit.
• Build up funds for financial reserve, bad debts, and discounts on inventory.
• Perform periodic checks to re-evaluate the number of materials and goods, capital, accounting books, and handling the difference.

Focus on risk management

Capital management is an issue for businesses to solve if they want to have an effective business process. Through the 7 ways to manage capital above, Viindoo hopes businesses can build a reasonable capital usage plan. Contact us through the information below if you need advice on effective business and financial management solutions.

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