One of the biggest worries facing small businesses today is a lack of access to working capital. In a recent survey in Europe, 54% of small business owners said that poor cashflow was their biggest business worry. Working capital issues can leave your business vulnerable to various setbacks, but it can also make it hard to grow your business.
When you have more working capital, you’re able to take advantage of opportunities to grow your business without worrying about your day to day running costs. Here are 4 ways that working capital can help you to grow your business.
Here are 6 ways that working capital can help you to grow your business:
1. Add more staff
Taking on a new worker can be a great step for getting more business. With an extra pair of hands you can fill orders faster, streamline your existing sales processes, or boost your customer service. Your new employee could focus on improving your marketing efforts, increasing or kickstarting your social media marketing, or writing better product descriptions for Amazon. Hopefully, your new employee will be another step in growing your company’s profits as well as your business size.
The trouble is that when you take on a new employee, you have to spend money before you see your profits rise. You’ll need to begin paying a salary and benefits from day one. It also costs money to find the right person to for the job – ads on job boards, the time cost of interviewing applicants, and the price of background checks can all add up to more than $1,000. It also takes time for the new employee to become a fully productive member of your team. All in all, a successful new hire can cost you 1.5% to 2.5% of your total revenue.
If your business is growing fast, you might really need that extra pair of hands, but all your working capital could be tied up in your existing business needs. That’s where Payoneer Capital Advance can help you out, with a working capital advance that covers the temporary expenditure on a new hire.
2. Increase your inventory
The more products you stock, the more you sell. The more you sell, the more money you make. In order to grow your business, you should always be on the lookout for ways to expand your inventory. These could include:
- Adding a new product line that complements your existing inventory, such as selling belts and mobile phone holders alongside your line of handbags.
- Increasing the product choices that you offer by adding more color, size, and style options, like adding clutches as well as messenger bags.
- Offering customization options, such as monogrammed bags, added inner pockets, or embellishments.
- Holding more items in stock. For example, instead of keeping 50 handbags in stock, you’ll boost your regular order to 100 handbags at a time.
A bigger inventory means more sales and more money, but it also means more outlay. You’ll need to buy your stock before you can sell it, which means increasing your expenditure before you increase your income. You might also need to pay for more storage space. If your customers don’t pay up on time or your profit margin isn’t large enough, you might not have enough working capital to cover the increased order.
A working capital advance allows you to grow your business inventory size so that you can grow your sales and your profits.
3. Expand your markets
Building a sales presence in another online marketplace, expanding into another geographic location or moving onto a new sales platform are all great ways to grow your business. This will allow you to access new customers, and you could find an excellent business opportunity that’s just waiting for your product.
However, you’ll probably need to pay initial setup costs to enter these new markets. Some of the costs that you may encounter include:
- Translating product instructions and writing new product descriptions in a new language
- Rewriting your product descriptions to fit the regulations of the new marketplace
- Increasing your inventory so you can supply more customers
- Making initial payments to join the new marketplace
- Setting up a new warehouse space or joining a new fulfillment center
Even with excellent cashflow, you might find that you don’t have working capital to spare to fund your expansion into new markets. A working capital advance like Payoneer Capital Advance could give you the safety net you need to join a new platform or enter a new region.
4. Prepare for seasonal sales surges
If you find that your cashflow rises and falls throughout the year, you’re in good company. Many online sellers have seasonal highs and lows in their eCommerce businesses. You do your best to manage your cashflow to get through the low seasons, and to prepare to make the most of the high sales seasons.
Despite your good cashflow management, you might find that there are times when you need an injection of working capital just to tide you over some gaps. These can include:
- Keeping on employees during periods of low sales, because you know that you’ll need them again when sales pick up
- Keeping your inventory current even when sales are low
- Increasing your inventory just before seasonal sales surges
A working capital advance helps you smooth out seasonal dips in your cashflow, and prepare your business to make the most of high sales periods.
When you have enough working capital to keep your business running smoothly, you’re able to focus on finding and seizing growth opportunities, instead of worrying about the day to day running costs.
5. Manage Cash Flow Gaps
Cash Flow challenges are among the top reasons why startups never take off around the world. The gaps in cash flow can affect the business’s ability to order inventory, pay the salaries of employees, and other expenses among many other things. Essentially, these are the areas that directly influence the performance of the business which makes them very important to address.
The first thing to address these challenges is to figure out the reasons for them. Cash flow problems can be due to several factors including late payments from customers, overpaying to vendors, ordering too much inventory, and constant charges for equipment maintenance. It is best to figure out which of the mentioned problems is producing cash flow challenges but in the meanwhile, working capital can be used to mitigate the trouble.
6. Investment in Operations & Marketing
Investment in quality operations & marketing not just improves the performance of the business but also increases your competitive advantage. The price of quality operations & marketing can be intimidating but it is all worth it. You might have to pay higher costs initially but with better performance, it would offer much better value to you.
7. Covering Unexpected Costs
Unexpected events are regular occurrences in all types of businesses in the world. It could be shut down because of climate disasters, the breaking down of a piece of equipment, the quitting of a top employee, or tons of other things. Point is, there is a plethora of stuff that could go wrong and consequently halt the business operation for some time. In this window, the sales of a business will fall down, and ultimately, you would record much lesser profits.
In these cases, businesses that do not have enough working capital resort to lenders to cover their operational expenses. Whereas businesses that have a significant sum of working capital at hand can utilize it to cover these expenses. Hence, the second type of business does not get trapped in the cycle of debt and has a much better chance at growth than the former.
How Can Capital Advance Help Businesses With Working Capital?
Capital Advance is a service offered to its customers by Payoneer. It provides a solution to most problems that are related to cash flow and working capital. Businesses that have accounts integrated with Payoneer can request funds based on the payments that they could receive in the coming months. It offers up to 140% or $750,000 in funds instantly which can be used to manage cash flow and working capital problems.
Learn more about how Payoneer Capital Advance can help your business grow, by giving you access to the working capital you need to take advantage of growth opportunities and keep making your business better.
New to Payoneer? Learn more about Capital Advance
How Does Working Capital Increase Profitability?
Enough working capital allows businesses to invest in inventory, equipment and new talent which optimizes the business by streamlining its several aspects. Hence, the owners get better performance from the businesses which ultimately returns better profits.
What is good Working Capital Management?
Management of Working Capital should be based on the optimal monitoring and use of the company’s resources and liability. The goal should be to meet the short-term operational costs and debt obligations by maintaining a sufficient cash flow which would ultimately improve profitability.