3 Factors That Can Help You Determine How Much Working Capital You Need
Starting a new business is exciting, but it also comes with a significant amount of responsibility. Financial stress is something that many small business owners experience on a regular basis. It can take time for a new business to begin turning a profit, but you will have expenses to cover from day one.
Taking out a small business loan to help bolster your working capital can be a great way to alleviate some of the financial stress you may be facing as you get your new business up and running.
1. Regular Expenses
The first step you should take in calculating how much working capital your small business needs is to accurately calculate your regular expenses. Profitable companies cover their expenses using the income generated through sales. When your company isn't making enough money to cover expenses, you will need another source of revenue.
Applying for a small business loan will give you a safety net to ensure you don't fall behind on any payments while you work to build your company.
2. Inventory Needs
The type of business that you are building can have a direct impact on the amount of working capital that is needed to keep your company afloat. One area where small businesses differ from one another is in their need for inventory.
Consulting or service-based companies don't need to keep shelves stocked with inventory to make a profit. Retail companies cannot turn a profit without a full inventory. A business loan that will cover the cost of purchasing any inventory your company needs can help you keep your shelves stocked for your customers.
3. Projected Growth
Successful companies know that sometimes spending money is the only way to make money. Growth comes at a cost, and you need to have the working capital necessary to accommodate growth if you want your business to continue to thrive.
One of the most expensive aspects of business growth is the hiring of new employees. You will experience a temporary strain on your finances until the cost of the added wages starts to pay off. A business loan that can cover your projected growth expenses will help prevent your company from being stifled.
Business loans can be valuable tools when used correctly. Take the time to think about your company's unique working capital requirements, then apply for a business loan that will bolster your existing working capital to ensure the success of your small business over time.