If you want to keep your business alive, it’s important to regularly check your working capital. This is because working capital is the surplus (or deficit) you have to keep your business afloat without needing to sell assets, borrow more, or add your own money into the business. In other words, it’s the health check for your business. The more working capital you have, the easier it is to fund growth or weather any downturns.

To calculate your working capital, you need to subtract your current liabilities from your current assets. This includes your cash, debtors, stock, and work in progress, and subtracting your creditors and taxes owing. For example, if your business has $150,000 cash, $120,000 debtors, $100,000 stock, $45,000 creditors, and $25,000 taxes owing, your working capital would be $300,000.

However, if your business has an overdraft of $150,000 instead of a positive cash balance, your working capital would be zero. This means your business would have no cash to cover any slowdown in debtor payments or a downturn in sales, which could lead to higher stock levels. Worse, your business could be in serious trouble for trading while insolvent.

To boost your working capital, consider the following strategies:

1. Build up enough cash to cover at least 2 months’ sales value. Use the average sales value for the last six months to calculate the amount you’ll need, then manage your expenses to build your cash stocks up to this level.
2. Renegotiate your debt. If your business has an overdraft, consider negotiating the core debt into a term loan. Speak to your bank manager about options for managing your debt.
3. Negotiate with suppliers. Speak to your suppliers and see if you can negotiate better terms, such as a discount for early payment or longer payment terms.
4. Set aside money for taxes. Calculate the percentage of sales you need to put aside for taxes and put this aside in a separate bank account.
5. Inject sufficient funds. If the above strategies don’t boost your working capital, you may need to invest your own funds into your business to cover your working capital requirements.

Regularly checking your working capital is an effective way to help increase your business’s cashflow, even during a slowing economy. By calculating your working capital requirements and identifying strategies to increase your working capital, you can ensure the health and success of your business. As Seth Godin said, “Change is not a threat, it’s an opportunity. Survival is not the goal, transformative success is.”