MMP Capital | Your resource for restructure

Apr 12, 2021

For many businesses, the biggest struggle during the COVID-19 pandemic has been maintaining cash flow and finding enough capital to stay afloat. Access to working capital will be the key to recovery for these businesses, especially smaller ones that have been subject to temporary closures or operational adjustments.

More working capital flowing through small businesses means greater economic strength, both within local communities and for the country as a whole. Here’s what small business owners need to know about working capital and the resources available to help them obtain it.

Working capital is how much money a business has on hand to use in its operations. It is the difference between the company’s assets, such as cash flow and inventory, and the debts and liabilities it owes, such as accounts payable. Sufficient working capital means the value of the assets you own and your overall business income is more than the cost of operating your business. The amount of working capital a company has is an indicator of its liquidity, operational efficiency, and short- and long-term financial health. Positive working capital gives companies more flexibility to scale and invest in other opportunities, while insufficient working capital means a business will struggle to cover expenses like rent, utilities, payroll, and inventory. COVID-19 forced businesses to slow or shut down their operations, drying up a much-needed source of working capital. Supply chains are operating more slowly, social distancing guidelines are still limiting the number of in-person customers a business can support, and some goods and services just aren’t feasible to offer in the way they were before the pandemic. This problem for businesses has been compounded by the fact that many customers are not spending as much as they did before. Many consumers have been financially hit or lost their jobs because of the pandemic. With less revenue coming in, companies are losing profits and, therefore, have less working capital to get them by.

For these businesses to thrive again, they’ll need to find ways to rebuild that capital and maintain positive cash flow through the remainder of the pandemic and beyond. This will, in turn, begin to reverse the downward economic trend that accompanied the onset of the pandemic. With more working capital, companies can grow by hiring more people, opening new locations, or otherwise expanding their business. When a company earns more profit, it also pays more taxes to the government, which can be reinvested into the economy. The sooner businesses get up and running at normal capacity, the more quickly the overall economy will bounce back.

Working capital isn’t just important to keep businesses afloat and bolster economic recovery. With access to sufficient funding, businesses can also invest in necessary technology upgrades and safety measures to prevent the spread of COVID-19, thereby contributing to the overall pandemic recovery efforts. —

Contact an MMP Capital specialist today and let us help you propel your business forward. | Follow us @mmpcapital