11 Most Effective Ways To Manage Insufficient Capital In A Small Business

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The following are the 11 Best And Most Effective Ways To Manage Insufficient Capital In A Small Business

  • Review your business capital
  • Insufficient capital
  • Fixed assets
  • Current assets
  • Stop credit sales to customers
  • Stock only fast selling products
  • Buy stocks from cheap sources
  • Ask your suppliers for 30 days to pay
  • Do more marketing
  • Collect your cash outside
  • Buy only assets your business needs

Business capital may be defined as money invested to generate more revenue.

Often times, small businesses like yours, have issues with managing insufficient capital.

Unarguably, Insufficient Capital is one of the most common causes of business failures.

Managing business capital can be really challenging for most peoples.

However, if you are facing this problem capital, do not worry so much because you are not alone.

Even the big companies also have their fair share of the problem.

That explains why they sometimes issue shares to raise more funds for their businesses or borrow from their banks.

This article is, therefore, focusing on actionable steps you can take to manage insufficient capital in your business.

Review Your Startup Capital

First and foremost, to enable you address the problem of insufficient capital, you need to examine the following two scenarios:

Insufficient Capital

Find out if your capital was adequate for the type of business you are doing.

If the business capital is not enough, you can:

  • fund your business from your savings
  • Get financial assistance from family and friends
  • As a last resort, seek funding from your bank.

More importantly, note that banks are not interested in funding new startups.

Most importantly, you should be weary about borrowing from the bank because of high interest rates.

High interest charges can wreck your business before your business even has a chance of succeeding.

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Investment in fixed assets 

Fixed Assets are tools that you use in your business to generate revenue.

Examples include plants and machinery, motor vehicles, office furniture and equipment and so on.

How much money you invest in fixed assets will largely depend on the nature and size of your business.

Furthermore, you should purchase only the fixed assets that your business uses.

You can transfer the proceeds from such sales to current assets. That will increase your working capital.

As a further guide, if you are in a retail business, you can allocate say 30% of your capital to fixed assets.

And reserve the remaining 70% for current assets.

Business Capital: Current Assets

Current Assets, which are also called circulating capital, include stocks, work- in- progress,  stocks, short term investments.

They also include cash that you will need to pay for the day to day expenses of running your business.

Current Assets are called ‘circulating capital” because their value changes from time to time, depending on the level of your business activities.

Business capital: Stop Credit Sales To Customers

If you are doing business with insufficient capital, you should stop selling goods on credit to customers.

Selling your goods on credit to customers, can affect your business in many ways, including:

  • Credit sales will tie down your money with customers
  • It will put heavy pressure on your cash flow
  • You might end up with bad debts which you may not be able to collect.
  • Bad debts reduce your profits
  • You will not have cash to replenish stocks when they get low.

Therefore, if a customer asks you for credit sales, politely tell the customer to collect whatever the money in his pocket can buy. You should sell on cash and carry basis.

Stock Only Fast Selling Products

Stocking only fast selling items is one of the best ways you can manage insufficient capital in your business.

The following are the benefits of stocking only fast selling products:

  • Your stocks turnover rate will increase
  • The faster the rate of your stock turnover the more sales and profits
  • There will always be cash in hand
  • You will be able restock when stocks get low
  • And you may not have much problem with your cash flow.
  • Manufacturers and wholesalers will be willing to allow you time to pay
  • Banks and other lenders might be willing to fund your business
  • Investors will be interested in partnering with you to do business.

Moreover, you should ensure that you stock high quality products.

Most importantly, you should not put your money on stock items that your customers do not need.

Buy Products from Cheap Sources

Another strategy that will help you to deal with insufficient capital is that you should endeavor to buy your stocks from the cheapest possible sources.

In other words, you should purchase your stocks from manufacturers, importers or large distributors.

Some of them may be able to give you trade or cash discounts.

Trade and cash discounts improves your bottom line.

Most importantly, selling at reasonable prices will enable you to:

  • get you referrals
  • recommendations
  • keep old customers
  • and get new customers.

Ask Your Suppliers For 30 Days To Pay

Another way you can manage insufficient capital in business is to push for your suppliers to give you 30 days or more to pay for supplies.

However, whether or not you succeed with this option should depend on your past records of doing business with them.

Alternatively, if suppliers refuse to sell to you because you owe them, you can negotiate with your suppliers to reschedule your debts.

This will make it a bit convenience for you to pay in little bits.

However, for this to work, you need to prove to your suppliers that you are someone they can trust.

Most importantly, you should remember that business is built on trust and connections.

Capital: Sell All Idle Assets

You should sell any assets such as old vehicles or plants that are not bringing cash into your business.

In other words, you should sell all assets that your business has not used in the last six months.

Use the money to boost your working capital.

Furthermore, you can trade-in old assets that are putting holes in your pocket.

Alternatively, you should consider leasing instead of outright purchase of new ones. This can save you maintenance costs.

Do More Marketing

When sales get low, you need to do more marketing.

Doing more marketing and sales promotion are two effective ways to boost sales in your small business.

In particular, you should advertise your products on radio, television, church bulletins and magazines.

They are very effective ways of driving sales.

Most importantly, the more people know your business, the more sales and profits you should make.

Capital: Collect Your cash Outside

If you have money outside with customers, this is the time for you to go after them to collect your money from them.

They are part of the problem that caused insufficient working capital in your business.

You can set up a crack team to go on debt recovery drive.

To encourage them, you can consider giving them little rewards for any money recovered by them.

Do not allow your business to join the league of failed businesses.

Finally, if you do not want that, you should use the above tips to save your business.

 

Related:9 Best And Most Effective Ways To Prevent Business Failure

Samuel Ijenhi

info@samuelijenhi.com.ng

 

About Samuel Ijenhi

A graduate in Accounting, University of Benin, Benin City, Edo State, Nigeria.
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