19. Managing Working Capital

SUMMARY

3 Steps To Improve Managing Your Working Capital

1. Measure - the key elements of working capital. I recommend using a dashboard to identify trends and patterns.

2. Review with financial statements and other KPI's - to get the whole story within the context of the current trading environment.

3. Link the activities that relate to the key working capital kpi's and assign responsibility to the key team member

Transcription

3 Steps To Improve Managing Your Working Capital

Okay, so, let's talk about managing working capital, and, I've just got three little steps for you to take to manage your working capital, better, so you've better outcomes for your business.

1. Measure - the key elements of working capital

So, the first thing you wanna do, is, make sure you're measuring the working capital, and I recommend that you use a dashboard, and on your dashboard, you'll have the three key measures of working capital. So, you want your accounts receivable turnover, your inventory turnover, and your accounts payable turnover.

2. Review with financial statements and other KPI's

So, there's three simple things that you can measure, but you'll also, you want to not look to those in isolation, because you also want to review those with your P & L and your KPIs, especially your leading KPIs. So, when I talk about reviewing with your P & L, what I like to do, the way that I'm looking at financial statements, I'll have here the balance sheet, and the I'll have the profit and loss, and that I'll have a dashboard, with KPIs, and not necessarily financial, but also non-financial.

So, you're looking for the relationships that go across, because, when you're reviewing financial statements, it's not looking at singular items, but your financial statements all have relationships, which will build a story. So, review them in context, and if you're not getting these reports, speak to the person in your organisation who can give you the reports, because, many times I've seen the finance department are producing these reports, but they don't realise that you actually want those reports. 

3. Link the activities that relate to the key working capital kpi's and assign responsibility to the key team member

Thirdly, is, link the measure to the activities, and then assign a responsibility. So remember, financial reports are not separate from the activities. They're actually mirroring what's actually happening in your business. So, look at your accounts receivable, and assign to someone who's in charge of that, or your inventory, assign someone in charge of that, and then give them the responsibility, and also the authority, to be able to make changes, as well.

These are three simple steps to start getting your managing, to manage your working capital on track, So, measure, have a dashboard, review, so you get the whole story, and three, assign responsibility to the activities that make up those things, and that way, you're gonna start managing your working capital better.

Thank you very much, and I'll see you in the next video.


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