5 Steps to Build a Working Capital Plan for SMEs

Are you an SME business owner trying to plan your business working capital effectively?

Perhaps you have realized that gaining revenues and acquiring more clients are just not enough to get sufficient working capital. It is important to plan working capital efficiently to manage operational expenses and to meet long-term funding requirements.

Significance of Working Capital Plan for SMEs

Supports smooth operation of business
Helps payment of salary, utilities, and payment to suppliers on time
Uninterrupted purchase of goods and raw materials for business
Generates goodwill
Helps handle financial emergency easier

Let us understand the steps towards building a Working Capital Plan for SMEs

1. Analyze the long term and short-term fund requirements

For effective working capital planning, a business should check the short-term funding needs like

payroll
utilities
marketing and operational expenses
rent
vendor payments

Before making a huge capital investment, it is important to assess the long-term funding needs like

purchase of machinery
purchase of land/ real estate
acquisitions and expansions
technological requirements

The inward and outward flow of cash does not happen at a similar rate or at the same period, hence it is important to analyze the current and long-term expenses to run a business steadily with a sufficient Working Capital Plan for SMEs

2. Analyze scenario

Compare your business growth potential with that of your competitor. You may analyze your external and internal environment by running a SWOT (Strength Weakness Opportunity and Threat) analysis. Try to understand if there are sufficient funds to manage operational expenses (salary, utility, vendor payments, and more) and if you have sufficient funds or a source of funds available for further expansion.

Challenges faced by small and medium-sized businesses:

managing multiple ERPs and Banks
manual chasing of invoice payments,
labour intensive reconciliation process
lack of transparency on working capital

3. Review, analyze and automate account receivables and payables

It is a good practice to review the accounts receivables and payables status to analyze and make plans effectively. You may choose to go digital to enhance customer satisfaction and avoid bad debt through convenience in the payment process. Your relationship with suppliers gets better as they get paid well on time.

Hylobiz is a fintech, helping SMEs and other businesses strengthen solvency with efficient working capital management. You can integrate your accounting software/ ERP seamlessly with Hylobiz. The real-time dashboard enables you to understand the status of receivables and payables. Hylobiz can help you digitize and automate your account receivables and payables and help you recover from negative cash flow situations. Sign up for free.

You can create, upload, and send branded invoices. You can collect payments digitally through multiple payment modes supported by automated payment reminders. The integrated payment solution on Hylobiz enables you to pay out on time. The static payment links can enable you to collect fixed amounts from multiple clients at regular intervals or in a certain period.

4. Evaluate the access to working capital and find the funding sources and alternatives

The current assets including cash in hand balance, receivables, inventories, investments, and access to working capital loans and other such funding sources show the health of working capital. Diversification and loan assistance can support tough financial situations. Hylobiz connected ERP and connected banking enable easy track of accounts receivables and payables, ensure quick settlements and reconciliation, faster payment and collections, better inventory management and offer invoice discounting and loans. Invoice discounting helps get loans against accounts receivables.

What is a business working capital loan?

An SME business owner has huge responsibilities and needs funds to meet expenses related to purchasing raw materials, payments to suppliers, payment of wages, and many more. A business working capital loan is a loan offered by financial institutions to businesses. It supports operational expenses for the smooth running of businesses. Working capital loans are in the form of bank overdraft, invoice discounting, bank overdraft, and so on.

The working capital loans can provide liquidity, foster growth to your business, and safeguard your business from unanticipated situations.

Hylobiz Ke Saath you can access working capital loans from its lending partners Bajaj finance and Neogrowth Credit Pvt Ltd. The real-time dashboard and automated reports display the accounts receivable which acts as collateral for loans.

5. Update the plans on regular basis

The strategic decisions and working capital plans made by a business help it to survive in an industry. In case of unforeseen circumstances like merger and acquisition, downsizing or in pandemic situations, the current assets and liabilities level changes severely and the working capital needs change. Due to the recent pandemic, the SME businesses suffered due to a dearth of capital and faced difficulty in managing working capital.

Businesses need to review their financial positions and working capital status periodically and improvise the working capital plans.