6 Keys To Successful Working Capital Implementation
Companies should be focused on the implementation and support of a cash culture as appose to a profit focus. Many profitable companies fail due to inefficient management of debtors, creditors and stock positions.
WHERE TO START WITH WORKING CAPITAL
A good starting place is for a business to examine its working capital equation. Inventory plus accounts receivable less accounts payable. It is important to note that the balance sheet only represents a fixed moment in time. A business must also be constantly looking at its inventory cycle, receivables cycle and payables cycle.
WHAT ARE THE KEYS TO SUCCESSFUL IMPLEMENTATION?
A successful working capital improvement programme can be comprised of six key elements:
- Setting clear business objectives – Market leading companies establish a clear plan, forecast, and projections and incorporate their working capital cycle to reflect the same.
- Calculate key metrics and improve – There are many metrics to measure a company’s working capital cycle: current ratio, quick ratio, receivables period, payables period and inventory period. Once calculated a company should strive to improve on them.
- Strong Governance – Get the corporate governance structure in place to provide a smooth transition to a new working capital cycle.
- Incentivize Management – Bonuses linked to working capital are a great way to motivate management to implement new policies.
- Enable Management – Provide programmes and tools that will support changes in an efficient and sustainable manner.
- Best Practise – New initiatives and actions should be integrated with a clear action plan and methodology.