6 Keys to Successful Working Capital Implementation

Companies have an obligation to release cash into a business from the balance sheet to fund growth. 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.

What questions do you have?

We are happy to help. Please post your comment below or call Jack Gahan from Corporate Finance Team on 01 677 9000. Alternatively, send him an email: jgahan@cooneycarey.ie

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