Businesses must maintain a certain amount of money to enable them to carry day-to-day operations. They must ensure finances are at an optimum level to enable their operations run successfully. Therefore, if an enterprise has adequate cash flow it is able to carry their activities economically and without financial constraints. It enables companies to face losses and unforeseen circumstances. The following are the advantages of maintaining optimum working capital.
It improves credit profile and solvency of an enterprise. When a business can meet short-term obligations, it can also meet long-term ones and thus can prove to be solvent. When businesses manage their liquidities, it allows them to pay their short-term obligations. This is a good indication that its credit profile is good. Suppliers will be paid on time to allow a continuous supply of materials which increases production.
Also, production is very essential in any firm that wants to fulfil the orders of their client. When suppliers are paid on time, they will supply the raw materials and this contributes to continuous production. This enables the firm to produce goods in large quantities which leads to increases in sales turnover. Also, the firm will be in a position to meet unexpected peak demands.
When a company can manage their liquid cash it means that it is using the available cash efficiently. This is beneficial to the firm as it can generate extra money using their managed liquid cash without depending on external financing. This is very vital for a small growing business whose access to external finance is limited by its creditworthiness. Also, small enterprises often pay their suppliers using the available cash which enables them to efficiently manage their finances hence proper allocation of resources.
It very easy for a business to access loans. Financial institutions are using the business financial statements to assess the creditworthiness and be able to approve loans. When an enterprise can maintain high solvency and goodwill, it becomes easy for banks and other financial institutions to award them loans. Also, it enables the businesses to get loans with favorable terms that will not exert too much pressure to them.
Also, it leads to an increase in fixed assets productivity if the cash in a business is well managed. Fixed assets of a firm when it increases its earning capacity. They also play an important role in the production. When well used it leads to an increase in production of goods. Increase in production is achieved when the fixed assets are well utilized which increases the sales turnover which in turn leads to an increase of cash at hand.
When a firm manages its capital efficiently, it is able to meet unforeseen shocks and peak demands. It helps firms to be able to survive through the crisis with confidence since they have enough cash to handle it. Also, it enables firms to meet unexpected increases in demand because of continuous production.
Research and innovation cannot be undertaken when there no sufficient funds to finance. Managing finances well encourages research and innovation and other technical developments to be undertaken. It equips people with knowledge and skills to explore new markets and do more of market research.
It improves credit profile and solvency of an enterprise. When a business can meet short-term obligations, it can also meet long-term ones and thus can prove to be solvent. When businesses manage their liquidities, it allows them to pay their short-term obligations. This is a good indication that its credit profile is good. Suppliers will be paid on time to allow a continuous supply of materials which increases production.
Also, production is very essential in any firm that wants to fulfil the orders of their client. When suppliers are paid on time, they will supply the raw materials and this contributes to continuous production. This enables the firm to produce goods in large quantities which leads to increases in sales turnover. Also, the firm will be in a position to meet unexpected peak demands.
When a company can manage their liquid cash it means that it is using the available cash efficiently. This is beneficial to the firm as it can generate extra money using their managed liquid cash without depending on external financing. This is very vital for a small growing business whose access to external finance is limited by its creditworthiness. Also, small enterprises often pay their suppliers using the available cash which enables them to efficiently manage their finances hence proper allocation of resources.
It very easy for a business to access loans. Financial institutions are using the business financial statements to assess the creditworthiness and be able to approve loans. When an enterprise can maintain high solvency and goodwill, it becomes easy for banks and other financial institutions to award them loans. Also, it enables the businesses to get loans with favorable terms that will not exert too much pressure to them.
Also, it leads to an increase in fixed assets productivity if the cash in a business is well managed. Fixed assets of a firm when it increases its earning capacity. They also play an important role in the production. When well used it leads to an increase in production of goods. Increase in production is achieved when the fixed assets are well utilized which increases the sales turnover which in turn leads to an increase of cash at hand.
When a firm manages its capital efficiently, it is able to meet unforeseen shocks and peak demands. It helps firms to be able to survive through the crisis with confidence since they have enough cash to handle it. Also, it enables firms to meet unexpected increases in demand because of continuous production.
Research and innovation cannot be undertaken when there no sufficient funds to finance. Managing finances well encourages research and innovation and other technical developments to be undertaken. It equips people with knowledge and skills to explore new markets and do more of market research.
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