Millennials will now be in the third or fourth decade of their lives. While many of them have achieved great success in their respective businesses, some are still struggling to run theirs. No matter the extent of success, all businesses require financial assistance to grow and expand their business. That is why many companies prefer to opt for a Business Loan either at the start of their business or while expanding it to get much-needed financial support. But please note that the loan installments, or the EMI (Equated Monthly Installment), should be paid on time regularly. This article will focus on the struggles of millennial-owned businesses and understand where they’re going wrong. In the process, we will also see what is working capital management and learn tips on how to manage it.
What is Working Capital Management?
Working Capital Management is managing the liabilities and assets of a running business. It is required to manage the business’s expenses like debt payments, upcoming operational costs, production costs, etc. Working Capital is estimated as current liabilities minus current assets. In an ideal scenario, current assets should be more than liabilities. If the liabilities are greater, it will be considered negative Working Capital.
In terms of formula,
Working Capital = Current Assets – Current Liabilities
What Leads to Bad Working Capital Management?
When Working Capital is negative, it is a case of bad capital management. Here are some factors that lead to this, along with tips to avoid them.
● Inventory management
It is crucial for firms that deal in production and supplies to buy in lump sum as rates per piece will fall less. While the rate per piece may go down, the one-time overall cost will be more. Moreover, the demand for the product is crucial. If the product is a slow-moving consumer good, then accumulating large quantities should be avoided. Technology also changes, and other products may lag in technology. For example, products like printers have much longer product life cycles than printer cartridges.
● Not understanding the nature of business
A business has different requirements for loans and capital. A firm providing services will not need much in terms of capital assets. Instead, it will require people and the main expense will be salaries. On the other hand, a product-based firm will require inventory and storage for inventory. A lot of businesses opt for loans without understanding the nature of their operations and this can lead to poorer working capital management.
● Not keeping tabs on price changes
Most industries constantly change prices. For instance, many sectors have raw materials with varying prices, and this affects the costs borne by consumers eventually. With all this, keeping tabs on changing prices is advisable, and businesses must make provisions to ensure that price changes in raw materials do not result in losses.
● Not opting for automation
It is better to get with the times and automate your processes than go bust. Many firms do not go for automation as it requires huge investments. Working Capital Loans can help with this, and while the loan will be a long-term liability, it will decrease operating costs in the long run. The packaging industry for example, with automation, can use robotic arms to package food items, making for better, faster, and hygienic product packaging.
Documents Required for Business Loans
Many businesses require loans to expand or stay afloat. There are short-term and long-term loans depending on the requirements. Below mentioned are the documents required for Business Loan.
● KYC – Company PAN Card, Director/Proprietor/ Partner PAN Card, Aadhaar Card, Passport, and Business Registration Proof.
● Business Address Proof – Utility bills or rent agreement
● Financial Documents – Last six months’ bank account statement
Conclusion
Working Capital Management is key knowledge that helps businesses remain profitable. Loans may be required to manage working capital, and it is always advisable to choose reputed financial partners. These institutions provide loans on various concessions, like Poonawalla Fincorp’s collateral-free Business Loans that do not need businesses to put up any assets for getting much-needed funds.
