Small business is developing, despite objective difficulties and administrative barriers. The most difficult part in this process is to take the first step and start producing goods or selling them. Quite often, individual entrepreneurs do not apply to the bank for a loan, but use their own working capital. As such serve the accumulation, savings or revenue received from the sale of some personal property. Long-term practice has clearly shown that for the start it is most preferable to use your money. And in general, the initial stage is very difficult both psychologically and organizationally.
Statistics dispassionately indicate that nearly 90% of small businesses cease to operate within the first two to three years. According to data from the same sources, the vast majority of such enterprises and individual entrepreneurs used the services of banks and took out loans for business development. There is nothing unusual in this behavior, since you have to develop your own working capital for a long time. And then, provided that the business plan is drawn up accurately, and things are going as planned.
The logic of doing business indicates that the availability of working capital allows the company to reduce costs and, thereby, increase profitability. This fact can be illustrated in a standard situation for production relations. When the time comes to purchase another batch of consumables or components, this is done by simply transferring funds from the company’s account to the supplier’s account. Neither additional time nor any special events are required. This procedure looks different when there is not enough working capital.
Since production cannot be stopped, and it cannot operate without raw materials, the money for their purchase must be borrowed somewhere, speaking the philistine language. Of course, you have to go to the bank and get a loan. Own working capital plus credit allow you to make settlements with suppliers. Then, during the period established by the loan agreement, pay with the bank. Thus, the costs of servicing this loan are borne by the cost of production. Cost is higher and product profitability is lower. Accordingly, and less profit.
From all that has been said, a completely natural conclusion suggests itself: any company should have its own working capital. And the larger their volume, the more reliable its financial condition will be. Working capital includes cash in bank accounts, stocks of materials and components in warehouses, accounts receivable from third parties. In this regard, it should be noted that the amount of receivables must be reduced to a minimum. It occurs when the products are shipped to the customer, and payment for it has not yet been made.
In order to keep such moments under control, a systematic analysis of working capital is carried out . The data of such an analysis allow us to see the picture of the production process as a whole. For example, to identify excess stocks of raw materials in the warehouse. They are undoubtedly needed, however, in amounts established by the relevant rules and internal regulations of the company. In the same way, it is necessary to monitor the state of working capital in bank accounts. Today, even medium and small enterprises prefer to have accounts in different banking institutions. As they say, for insurance in case of crisis.