Working capital is often a poorly understood and under-managed area for companies of all sizes, but especially for small businesses. What is often so puzzling and stressful for CEOs and business owners is that even with (or especially due to) strong revenue and profit growth, a company’s cash flow can suffer.
The complexity of how cash flow is driven by a variety of variables (e.g., sales, costs, profits, receivables, payables, other assets and liabilities) combined with a lack of management attention is often a dangerous combination for small companies.
A recent article by Smart Business Magazine interviewed Justin Vogel at Bridge Bank to highlight a bank’s perspective and wisdom on how companies can improve their working capital processes.
Here are some tidbits from the article and interview:
“When you don’t have a plan, you manage your working capital on a reactive basis and don’t recognize until the last minute that you’re going to run short on cash. You have to find a quick solution to get cash rather than relying on a plan that is more cost-effective and ensures that you’re operating with liquidity at all times.”
“Working capital is the lifeblood of your business. When it’s not managed proactively, it can severely limit your ability to grow your company.”
“It can be a tough spot to be in when your business is growing, but hasn’t reached the point where you can afford to hire a full-time CFO. Many companies in this situation are not big enough that they need full-time service. One option to consider is hiring a part-time CFO. Some companies rely on a bookkeeper or CPA, but the way the rules are written, CPAs need to be careful with the type of consultation they provide. A part-time CFO or consultant can check in with you on a regular basis and help you to make better and more informed decisions managing your working capital.”