Starting a self-employed business is no easy task. After all, you’re often operating on a shoestring budget. That’s why, once you have your business up and running, you can’t afford to fall behind on invoices being paid to you, as it will affect your working capital. However, there’s no need to worry and help is at hand. Here are some top tips on how to improve working capital in your self-employed business.
What is Working Capital?
Before we talk about improving your working capital, it’s important that you first know what working capital is (as a lot of SME owners don’t).
Working capital is the amount of cash you can deploy immediately. Sometimes it’s also known as operating liquidity. It’s the amount of cash that you need to pay creditors or suppliers for your daily trading operations.
Working capital is the difference between your company’s current assets (not including the cash it owns) and its current liabilities or debts. Put simply, if your assets are less than your liabilities, you’re running a capital deficit and may struggle to pay staff or any of your creditors.
For more on what working capital is and how it works, you can read this handy guide from Market Invoice.
How Do I Improve it for my Self-Employed Business?
Invoice payment terms mean that, as a small business, you’re likely to see good profitability but poor working capital. This is where the saying “turnover is vanity, profit is sanity, cash is reality” comes from. Fundamentally, as a small business, although you need to sell to be profitable, you need to recoup that money quickly and ensure you have cash reserves.
However, if your business is struggling from a negative working capital position, you can still improve it. So there’s no reason to panic.
Often, the easiest way of doing this is to use a line of credit from a finance provider. From overdrafts to invoice finance, there are a number of ways that you can arrange credit to help you with your cash flow and working capital issues.
Traditionally, a high-street bank would help a business through credit issues. However, much has changed since the credit crunch of 2008. It’s now much tougher to access bank finance than it has been previously (although it’s far from impossible).
As a result, if you’re looking for a line of credit quicker, then it could be wise to look in places other than the high street, such as online asset financers.