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 The general definition of working capital is the amount of money used for financing the day-to-day operations of a business. However, what does this definition actually mean in practice? Is it the amount of money in the bank account of your business? Is it the amount sitting in the cash register? Or do you require an accounting degree and all your cash flow statements and balance sheet to figure out what exactly working capital means for your business?

Working Capital Calculator - Demystifying what working capital means for your business

Because these questions are rarely answered for small business owners, we here at Reap have created a simple calculator to tell you more about your working capital. The calculator needs eight simple data points to get a general picture of where the business is right now. And then the calculator will provide you some findings.

In this article, we want to help you understand exactly what these results and numbers mean. And what steps you can add to your business plan to find more capital for growth.

1. Gathering some information

Before you get started, all we need is eight simple pieces of information to proceed.

  1. Last month’s sales
  2. Last month’s cost of goods sold
  3. Current inventory
  4. Inventory last month
  5. Current receivables
  6. Receivables last month
  7. Current payables
  8. Payables last month

Don’t worry if you don’t have these details right away, you can come back anytime to use the calculator. The numbers don’t also have to be exact. The purpose here is to give you a high-level view of where you are at right now. Whether or not you have completed the calculator, we can dive deeper into exactly what we are calculating, and how it’s relevant to your business.

2. Understanding the numbers

The calculator will tell you an average cash conversion cycle for your operating activities. This metric means how long it takes between you spending cash to prepare for selling your goods, until when you’re able to collect cash back from selling that good or service.

Why does this relate to working capital? Because the cash conversion cycle represents the time your cash is stuck as working capital, and you are unable to keep that cash on hand for other purposes such as growth and re-investments. So imagine a cash conversion cycle of 150 days, meaning every dollar you put in for your business, you won’t be able to use it freely for five months!

What can be done to improve this number and, have faster turnover of cash without hurting your business? We look at the three components of the cash conversion cycle.

a. Days of Inventory Outstanding

This metric means the cash value of your inventory, and the amount of time that is required on average to convert back into cash. This is important, because if this is too long, that means you have very high amount of inventory that remains in storage for long periods without being sold.

If there isn’t a need to stockpile large amounts, you may consider reducing inventory or finding an alternate solution allowing to flexibly adjust as your business needs arises.

b. Days of Sales Outstanding        

After the sale has been completed, you do not necessarily collect cash immediately, hence there is a receivable period. The Days of Sales Outstanding measures on average how long it takes for you to actually collect the cash from your customers.

The longer you don’t collect from your customers, the longer your working capital requirements will be, because you’re not getting cash fast enough. So consider options to demand payment faster from your customers, without impacting the relationship; perhaps monthly payments in instalments or other payment methods could be helpful.

c. Days of Payables Outstanding

The final component of the cash conversion cycle is how long you take on average to make payments to your vendors, suppliers, employees etc. The longer this metric is, the better it is for your working capital, because you are able to use cash for other purposes before any payments come due.

Negotiating longer supplier payment terms is a great way to extend this, or find a financing solution (eg. credit cards instead of bank transfers) for your expenses.However, it’s important to be careful, because sometimes vendors may demand payment upfront. It’s important to keep extra cash set aside to be ready to accommodate for unforeseen circumstances.

3. Identifying issues and changes

Now that you understand what the calculator is telling you about your working capital, we want to advise you on a few things before implementing changes towards any potential issues.

Everything is relative. Note that the number of days for each metric can be long or short depending on your business industry. For example, if your days of sale outstanding is 30 days, but everyone else in your industry is averaging 60days, that means you are doing a better job of collecting payments, quicker than competitors. This allows you to free up cash and grow faster.

But if the industry average is 15, then 30 days is not so good anymore, so you must understand the industry to compare them. Utilize your experience, and find a balance of which metric you can improve the most.

4. Key takeaways

A final disclaimer is that the calculator is based on the last month’s performance of your business. Certain industries, such as F&B or travel, will have seasonality, and will require you to consider which seasons will need more inventory, longer sales etc. This will impact your analysis.

Having enough working capital for your business to function day-to-day is most important for an SME.There will be situations that you even experience negative working capital meaning you are putting more cash into the business than taking out, even though you might have positive net income. In these scenarios, you may need working capital financing or loans to invest, even though the business is working well.

5. A more tangible example

Let's say, you are running an e-commerce store selling your own designed Awesome T-shirts. You sell them for 50 HKD each, and order them from your supplier for about 30 HKD each.

So in the past month (30 days) your t-shirt business sold 10,000 Awesome T-shirts, which is about 500,000 HKD in sales. And the supplier cost of buying those T-shirts, were 300,000 HKD.

You like to keep some inventory on hand, in case your supplier can't deliver them fast enough if you sell too much. Right now you have 10,000 shirts in storage. This means your inventory right now would be 300,000 HKD (recorded at the cost of the shirts). A month ago you had a bit more on hand because you expected to sell more T-shirts, around 20,000 shirts, so 600,000 HKD in inventory.

Of the 500,000 HKD you sold last month, you're still waiting to collect 200,000 HKD, because the customer hasn't paid you yet. This was the same a month ago. Your receivables typically do not change as I wait to collect money

For your supplier, you generally pay 50% upfront, so the rest you pay a bit later in around 30 days. Which means 150,000 HKD sits in your payables right now. Last month this was about the same too.

If you input all this information into the calculator, you'd get the following results.

·      Your cash flow from operations was 500,000 HKD over the last month

...this means the total amount of cash that you brought into the business, not just the sales on record

·       Your average days of inventory outstanding is 45

...this means the cash value of your inventory is stuck for an average of 45 days

·       Your average days of sales outstanding is 12

...this means it takes on average 12 days for you to collect cash from any sale

·       Your average days of payables outstanding is 15

...this means you take on average 15 days to pay your operational expenses

·       Your cash conversion cycle is 42

...this means 42 is the average amount of days between starting to get supplies for your goods/service and collecting cash from the sale

‍營運資金計算器 – 拆解營運資金對你的業務有何含義

由於很多小企業的東主都不知道怎樣回答這些問題,於是我們Reap就創建了一個簡單的計算器,讓你更了解你的營運資金是什麼。這個計算器會用到8個簡單的數據來進行運算,助你全面剖析當前的業務狀況。然後計算器將為你提供一些相關的結論。

在這篇文章中,我們希望幫你清楚理解這些運算結果和數字的含義。從而讓你在籌劃業務發展大計時,知道該如何一步步尋找更多資金令企業穩步增長。

1 收集相關資料

在開始前,我們需要的只是8個簡單的數據資料

  1. 上個月的銷售情況
  2. 上個月商品銷售成本
  3. 目前的庫存
  4. 上個月的庫存
  5. 今期應收帳項
  6. 上個月的應收帳項
  7. 今期應繳帳項
  8. 上個月的應繳帳項

如果你暫時未集齊所有相關數據資料在手亦無需擔心,你可以隨時拿取數據再回來使用計算器。這些數字也不一定要百分百準確。因為我們的目的是讓你有一個高階的概覽令你知道企業當下的狀況。不論你是否填妥所有數字,我們都可以按你提供的數據進行深入剖析和計算,從而為你的企業提供相關分析。

2. 理解數字背後的意義

計算器會告訴你,你的業務在營運上的平均現金轉換周期是多久。這項指標意味著你由用現金準備商品或買貨開始,直至賣出商品或服務收回現金需要多長時間。

為什麼這與營運資金有關呢?因為現金轉換周期代表著你的現金被困住作為營運資金的時間,在這段時間內你無法將現金留在手中作其他用途,例如擴充業務和再投資。因此,想像一下一個150天的現金轉換周期就意味著你為企業投入的真金白銀將於5個月內動彈不得!

要怎樣做才可以改善這個數字,同時在不影響業務發展的情況下,加快現金周轉呢?讓我們來看看現金轉換周期的三個組成部分。

a. 收回庫存款項日數

這項指標代表你庫存的現金價值,與及平均需要多少時間將商品轉換成現金套現。這項指標很重要,因為如果套現的時間過長,意味著你積壓大量存貨,存放良久仍未能售出。

如果並無特別原因需要大量囤貨,你可以考慮減少庫存或尋求其他變通的方案,讓你可以更靈活地去調配資源,以迎合業務需求。

b. 收回銷售款項日數     

在商品售出後,你不一定會立即收取現金,因此會衍生一個應收賬項期限。收回銷售款項日數是用來計算你平均需要多少時間從客戶手中確實地把現金收回。

你從客戶處收款回來的時間拖延得越長,代表資金被困住作營運資金的時間亦越長,因為你收取現金的時間未夠迅速。因此,可考慮不同的方案,如在不影響合作關係的前提下,要求客戶盡早結清款項;又或者以月結形式或其他繳款方式找清款項都有助加快資金的運轉速度。

c. 未償還的應繳賬項日數

現金轉換周期的最後一個組成部分是你平均會隔多長時間付款予你的產品供應商、原材料供應商和發薪給員工等。這指標的時間越長,對你的營運資金越為有利,因為在賬項到期前,你都可以手持現金,自主地運用資金作其他不同用途。

與供應商商討一下,爭取較長的付款寬限期是最有效延長這個指標的方法,或者以舉債的方案(例如使用信用卡而非銀行轉賬)來應付開支。然而,要留意的是處理時要小心謹慎,因為有時候供應商會要求預付費用。所以額外保留後備現金以應付突如其來的情況亦是非常重要。

3. 認清問題並作出調整

現在你對計算器加深了解,知道你的營運資金是什麼,我們希望在你因應任何有可能發生的問題而選擇作出調整前,先給你幾個建議。

所有東西都是相對的。留意每項指標的日數標準會按你身處的行業而有可能變長或者縮短。舉例︰如果你用30日的時間可以收回銷售所得的款項,而你的同行平均需要用60日的話,這代表你在收取貨款方面比競爭對手做得更快更好。這樣你便有更充裕的現金,讓業務發展得更快。

相反,如果行內平均標準是15日,而你要用30日的話,情況就不太理想了。因此你必須要了解行業標準再作出比較。運用你的經驗,平衡利弊後找出你可以大大改善的指標。

4. 重點撮要

最後要重申一點,計算器是按你上個月的業務表現來作出運算。某些行業,例如餐飲或旅遊業會有淡旺季之分,你需要考慮哪一個季度需要更多庫存或更長的銷售期等。這些考量將會影響你的分析。

對中小企而言,最重要是維持足夠的營運資金去應付企業的日常運作。有時候,你可能會面對營運資金出現負數的情況,意思是你注入公司的現金比提取的為多,即使你的淨利潤可能是正數。在這些情況下,即使你的業務運作良好,你也可能需要進一步籌組營運資金或者用貸款的形式來進行投資。

5. 舉一個更具體的例子

假設你正經營一家網上商店,銷售自家設計的優質T-shirts。你的定價是每件賣港幣50元,而你從供應商取貨的成本是每件港幣30元

然後在上一個月(30天內),你賣出總共10,000件T-shirts,合計港幣500,000元銷售額。而你從供應商買貨的成本則是港幣300,000元

你希望保留一些存貨備用,倘若生意比意料中好,你亦不用擔心供應商來不及發貨而錯失商機。現在你有10,000件T-shirts存倉。即是說你的庫存現值是港幣300,000元(以T-shirts的成本價計算)。一個月前,因為你預算會賣出較多T-shirts,所以你的庫存稍為再多一點,有20,000件,等值港幣600,000元

上個月賣貨所得的港幣500,000元裡面,你仍有港幣200,000元未收回,因為客戶尚未找數。跟之前一個月的情況相同,應收賬項通常維持不變因為你會靜待客人放款。

至於你的供應商方面,你一般會預繳50%,餘下的尾數會在約30天左右的時間繳清。即是你現時應繳但未繳的賬項是港幣150,000元。上一個月的情況亦相類似。

如果你把手上的數據輸入計算器,你會得出以下結論。

·      過去一個月你從營運得來的現金流是港幣500,000元

…這是你為企業帶來的現金總數,並不單純只是一個銷售數字

·      你收回庫存款項的平均日數是45

…即是你庫存的現金價值被困住的平均日數是45日

·      你收回銷售款項的平均日數是12

…即是你平均需要花12日時間從客戶手中把銷售得來的現金收回

·      你未償還的應繳賬項平均日數是15

…即是你平均用15日時間去付清你的營運開支

·      你的現金轉換周期是42

…即是你從供應商處買材料去準備商品/服務,直至你銷售後取回現金的過程平均需要42日


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