Working Capital Needs: Can Your Company Afford to Grow?

According to PwC's Working Capital Report, many companies with a data-centric and digitally-enabled working capital approach have significantly improved their performance.

However, new business owners can find it hard to balance their working capital and current liabilities. If not managed well, your business can find itself in a working capital deficit, and you will have difficulty meeting daily expenses.

So, when is the right time to start seeking funding for your business? Here, we tackle some of your financing questions for you to make an informed decision about your funding future. 

4 Questions to Determine If Your Business Needs More Financing

A detailed business plan will provide a roadmap for operating your new business and provide important information to lenders and potential investors.

As you develop the financial projections for your business plan, here are four questions you can ask yourself to help determine the amount of working capital necessary for your business to be successful. 

Do You Have Sufficient Cashflow to Manage the Day-to-Day Management of Your Business During the Early Phases?

If your financial forecasting indicates you will have a slow cash flow in the first year, then you might need additional working capital to launch or operate your business.

Be sure this need is detailed in your business plan, including an explanation of all financial assumptions.

Is Your Business Doing Well?

Before seeking financial assistance for working capital, you should thoroughly assess your current financial situation. Do not apply if your business is struggling, as external funding sources require a return on their investment.

Investors require a rate of return on their investment, and banks will add interest to a business loan. The interest adds to the investment and could make the external funding more of a financial burden for your business.

Do You Need to Build Your Business’s Credit?

New businesses need to build credit because good credit scores make obtaining better rates on future loans easier.

Regardless of your business’s structure, building credit starts with getting your business properly established and opening bank, credit card and vendor accounts.

Moreover, paying your bills on time is critical to building and maintaining good business credit. Additionally, timely bill payment is essential for establishing and preserving good corporate credit. Try to document all of your commercial dealings. For instance, you can use online banking or an e-wallet to digitise your receivables so they can serve as proof of your company's activity and sustainability.

Is Your Business’s Need for Funding Driven by Seasonal Factors?

In business, seasonal factors have a significant impact on your revenue. Depending on your industry, you will experience periods in the year where your money is rolling in and others that are frustratingly slow in comparison.

Funding to meet seasonal needs is typically short-term and met through smaller loans with quicker maturation. As a business owner, you need to manage your cash flow and expenses and look for ways to minimise business costs.Try to look for a simple revolving facilities that can cater for seasonal usage and not causing prolong commitment to your business, for example – business credit card.

Seasonal businesses benefit from working capital funding during their quieter periods. Having additional working capital helps speed up your growth, acquire new equipment, purchase property, support uneven cash flow, provide emergency relief, and much more. 

How to Choose Your Best Financing Option

Deciding what type of financing best suits your needs and your business will help you choose a lender. Compare services, requirements, and reviews to decide which bank or company you can work with.

You should also check your credit score before you meet with lenders or apply for online loans. Doing so makes you less likely to face rejection for your loan application. Raising working capital for a business comes with many questions. There are many available funding options, and each carries its own set of benefits and burdens that business owners must consider carefully.

The CIMB SME Quick Biz Financing is for business owners who need help improving their business cash flow with working capital funding. It enables SMEs to apply for financing of up to RM1million via a hassle-free application process with minimal documentation.

If you are an entrepreneur eager to take your promising enterprise to the next step, visit our Business Insights section for helpful tips and financial guides.

This article is brought to you by CIMB as part of our ongoing efforts to raise the level of financial literacy among Malaysians. Financial knowledge and understanding are key to making well-informed and meaningful financial decisions towards positively improving welfare and well-being of communities. This is one of our many efforts to achieve CIMB’s purpose of advancing customers and society.