The way in which you manage your business' Assets and Working Capital is vital to your survival and prosperity. Effective asset management is instrumental in increasing the return your Assets provide while making sure your Assets are working and continue to work for you.
What are your Assets and Working Capital?
Your Assets are the things you own in your business. Examples include:
Liquid Assets
Cash in your bank account
Debtors—the money owed to you from your customers
Stock—held on your shelf to sell
Fixed Assets
Plant & Equipment—such as your tools of trade, forklift etc
Land & Buildings—if you own the premises
The key difference between these two types of Assets is that Liquid Assets provide the cash flow in your business.
Your Working Capital is the surplus of your Liquid Assets over short – term liabilities. If you have more Liquid Assets than short-term commitments then you have positive Working Capital.
Why is it important to manage these?
For a business to operate it must have Working Capital. Without cash flow from good Working Capital management, a business will be unable to pay for it's expenses and buy more stock. Ultimately, a business with a shortage of Working Capital is at high risk of failure. Good Working Capital will ensure that you are not affected by ever increasing Interest Rates.
How should you manage the assets in your Business?
One word is, efficiently. With Working Capital Assets, such as stock and debtors, the aim is to minimize the number of days from when the goods are purchased to when they are sold and cash is collected from the customer. The cycle of goods purchased to cash collected is called the cash conversion cycle.
For non—Working Capital Assets, primarily known as Fixed Assets (such as Plant & Equipment) efficient management of these Assets includes making sure that each asset is used productively in the business.
Need more information, contact PJT on 07 5413 9300.