Improve working capital
Companies that implement best practices, clever thinking, new technology, and information systems to drive good decision making will find it easier to increase working capital.
Innovations like these add to the necessary competitive edge that keeps companies thriving in an ever changing and often volatile global economy.
To support our clients and help them stay ahead of the pack, we work with them to utilise a six step strategy aimed at improving working capital.
1. The Project Charter: Define the initiative
Understand what you want to achieve and who needs to be involved. It is important to view Working Capital performance improvement as a strategic objective that takes a team effort from several different areas and management levels within your company.
2. Get the information you require
Access to accurate and accessible information is critical to properly assessing your situation and options. Develop a common view of targets and achievements across your organisation to make sure process improvements stick.
Sharing information increases awareness of Working Capital performance and the impact each division and department has. Empowering managers with information enables them to take an active role in the corporate improvement initiative.
3. Create a cross-functional team to identify improvement strategies
Managing Working Capital may seem simple: extend supply payments; reel in customer payment timeframes; minimise inventory; maximise inventory turns.
Unfortunately, things are not that simple - every action has a reaction. Extending payment terms to vendors without an overall strategy will probably result in higher prices for products they supply. How do you reel in customer payment timeframes without risking good relations? You may not be able to. Forcing inventory on your suppliers may result in higher prices as well. Innovation will involve people and processes throughout your company, so you will need cross-functional teams to work together to accomplish your goals.
4. Put your initiative to work
Being able to put an initiative into motion and realise its benefits is a discipline and takes resources - people, processes, and information. Detailed project plans should be used to make sure that the project stays on track. An experienced project leader is also critical to the success of the initiative.
Be sure to keep the project's objectives realistic and focus on near term results.
5. Measure and validate improvements
As the initiative unfolds, it is important to measure the success and improvements being made against historical baseline information for your organisation.
A timeline of informational metrics is important and should be made available to all members of all teams so that they can see progress and understand that their efforts are paying off. Share your success with the customers and vendors. This will encourage them to work more closely with you to improve their businesses as well.
6. Adjust the project charter and reiterate
Every initiative will have room for improvement, so analyse the issues and determine how it could be made better. Reflect this in the project charter and reiterate steps 1- 5.
Leverage your early success to justify continued investment and improvements of the project. View this as a performance improvement discipline which never ends.
Seeking professional help to establish a working capital improvement plan and executing it within your business will allow you to optimise processes and streamline seemingly routine operations.
What could additional cash flow allow you to do in your business?
For further information please contact one of our Business Advisory specialists.