Own circulating assets of the company

Small business develops 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, there are savings, savings or revenues derived from the sale of some personal property. Long-term practice has clearly shown that it is preferable to use your money for the start. And in general, the initial stage is very difficult both in the psychological plan and in the organizational one.

Statistical data show that nearly 90% of small businesses cease operations within the first two to three years. According to data from the same sources, a large majority of such enterprises and individual entrepreneurs used the services of banks and took out a loan for business development. Nothing unusual in this behavior, as own working capital has to be worked on for a long time. And then, provided that the business plan is made accurately, and things go as planned.

The logic of doing business proves that the availability of own circulating assets allows the company to reduce costs and, thereby, increase profitability. This fact can be visually illustrated in the standard for the production relations situation. When it comes time to buy the next batch of consumables or components, this is done by simply transferring funds from the company's account to the supplier's account. No extra time, no special events to conduct for this is not required. In another way, this procedure looks like when working capital is not enough.

As production can not be stopped, but without raw materials and materials it can not function, money for their purchase must be borrowed somewhere, speaking in the common language. Of course, you have to apply to the bank and take out a loan. Own working capital plus credit allows making settlements with suppliers. Then, within the period set by the loan agreement, pay off with the bank. Thus, the cost of production costs the maintenance of this loan itself. The cost price is higher, and the profitability of products is lower. Accordingly, and the profit is less.

From all that has been said, it is quite natural conclusion: any company must have its own working capital. And the more their volume, the more reliable its financial condition will be. The composition of working capital includes funds in bank accounts, stocks of materials and components in warehouses, accounts receivable from outside organizations. In this regard, it should be noted that the value of receivables should be reduced to a minimum. It occurs when the products are shipped to the customer, and the calculation for it has not yet been made.

In order to control such moments, a systematic analysis of working capital is carried out . The data of such analysis allow to see the picture of the production process as a whole. For example, to reveal excess stocks of raw materials in the warehouse. They are undoubtedly needed, however, in the amounts established by the relevant rules and internal regulations of the company. Similarly, it is necessary to monitor the state of working capital in the accounts of banks. Today, even medium and small businesses prefer to have accounts in different banking institutions. As they say, for insurance in case of crisis.