Island Savings

Working Capital

Having a positive cash flow simply means having more money coming in than going out. A positive cash flow is critical to the operation of your company, and a key indicator of a healthy, well-run business.


Managing cash flow

  • There are two basic keys to maintaining a positive cash flow. First, you need to know how much cash is coming in and when, and second, you need to know how much cash is going out and when.
  • The trick lies in balancing your income against your expenses. To do this, you need to be aware of a number of important factors. Is your business seasonal? Is your payment cycle in sync with your collection cycle? Are you managing your assets and inventory properly by purchasing only what you need, when you need it?
  • In order to keep your finances running smoothly, you'll need to constantly evaluate your cash flow and be prepared to adapt as necessary.


Working capital gives you the liquidity you need to take advantage of future opportunities, but also gives you staying power to weather the volatility storm.

Ways to build working capital

  • Minimize capital spending—new investments in land, buildings and machinery should be carefully evaluated. It is best to consider a loan before eroding your cash flow. Also, resist the temptation to make purchases solely to avoid paying taxes.
  • Minimize interest rate risk—look for ways to lock in the interest rate for the term of the loan or at least for a number of years, so you know your term payments and you can plan accordingly.
  • Re-evaluate unnecessary expenses you may be paying, including bank fees, equipment rentals and monthly contracts.
  • Avoid pre-paying your intermediate and long-term debt—first, consider possible future cash needs. If you have debt locked in at a low rate it might be better to invest your cash in more liquid sources.
  • Invest in short-term money market accounts or other liquid investments.
  • Consider re-investing your intermediate or long-term assets into liquid assets.
  • Restructure your balance sheet. Depending on what your current balance sheet looks like, you may be able to restructure debt from the current portion of your balance sheet to long term notes—but use caution, you don’t want to end up back in the same position with even less options.
  • Consider an equity partner to provide cash infusions—you should note that this option comes at a cost though; you may loose control of your company in having to answer to a new business partner.


Develop a comprehensive risk management plan which includes life insurance, property insurance, crop insurance and also business interruption insurance to protect your cash flow and credit worthiness. You want to protect your business.

Getting paid

Unless your customers pay immediately on receipt of goods or services—if you run a café, for example—then you may be in a position where you are extending credit to your customers. In this case, you'll need an effective system for monitoring and collecting receivables, and you'll require a clearly defined collection policy. All of your customers should be aware of your collection policy and you should be in a position to put it into action if need be.

Operating loans

  • Operating loans can help you cover your business expenses in advance of collecting the receivables to pay them.
  • The lender will use a percentage of your accounts receivable as collateral against an operating loan.
  • Operating loans are not one-time loans, but are set up with a lender as a series of pre-approved, short-term loans with a maximum limit, saving you the hassle of having to constantly negotiate new terms.
  • Many new businesses require operating loans, but as your business grows, you'll ideally be able to operate without them.

Remember, we’re here to provide the advice you need and to help you grow your business from a start-up to a self-sufficient operation. Talk to us about financing options.

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