Working capital optimization

Making the most of your current assets and liabilities.

Working capital enables a company to function smoothly and pay its bills in a timely manner. Most companies understand the importance of managing their talent, however achieving an optimum balance is rare for two reasons. First, most companies don't have specific experience in optimizing their working capital, so they don't give it enough attention. Second, it wasn't considered a source of profit for the company.

Until now.

One of the primary goals of working capital optimization is to achieve superior management of all of the processes that create working capital balance. In the vast majority of cases, companies don't have a specific focus on working capital; it's typically part of the bigger financial management of the organization. But this management takes some effort. Until recently, focus on working capital has been lacking because, when times were good, managers focused on the big picture and profits were easier to come by. Now that times have changed and are more challenging, management needs to focus on areas where profits are harder to come by.

Ajilon Finance Solutions has identified the specific focus areas and can provide you with the tools and techniques to optimize your working capital balance. Through this process you'll be able to squeeze more profit out of your current operations, regardless of the economic environment.

Our 5-step method for more efficient human capital management

1. Look at the current policies and attempt to improve them to drive more efficiency into the system

2. Analyze the current processes and make improvements where we feel the most value can be gained. Our intention is to get the current staff to work more efficiently.

3. develop some specific performance metrics to evaluate how the goals are being accomplished. As long as the company manages to these specific metrics, they will be able to sustain the current procedures and have consistent, measurable improvement toward the overall goal

4. Look at your current software usage and make recommendations on how you can use the software you already have to maximize efficiency.

5. If necessary, introduce new software that will enable dramatic improvements in efficiency.

The goal: increasing the amount of cash on the balance sheet.

Increasing the amount of cash available to the company has two important benefits. First, it improves your liquidity because it enables you to take advantage of immediate business opportunities. Second, it improves profitability because it allows you to invest that cash in interest bearing accounts, while avoiding interest payments on borrowed resources.

Three primary areas of focus for working capital optimization.

1. Accounts receivable and collections

The goal of AR management is to reduce the balance of the account by more quickly converting it to cash. Most of the focus in this area will be to dramatically improve the efficiency of the collections process. By creating a full-cycle process which better ties the AR and collections processes together, we can significantly improve the bottom line.

2. Inventory

The goal here is to reduce the amount of inventory on hand while still meeting the demands of customers. Sometimes there's a mismatch between the amount of product ordered and the amount of product the customers are demanding. Our goal is to optimize the levels of inventory while still maintaining a smooth running operation.

3. Accounts payable

Accounts payable management focuses on three areas. First, take advantage of vendor discounts. Some vendors will offer discounts for early payment, however many AP systems are not set up to move things along fast enough to meet the deadlines. Second, pay to agreed-upon terms. If AP management

can be reconfigured to pay to agreed-upon terms, then cash will be freed up. The third area is to push out payment on current vendors. Some vendors will extend terms if a company can meet specific performance guarantees like production plans and purchasing forecasts.

The vast majority of companies have effective management in these three areas and continued focus on these areas is essential to successful operations. However, effective management doesn't necessarily mean efficient management. By improving efficiency in these areas, the cash account on the balance sheet improves and creates greater opportunity for profitability improvement. Our skill in managing these areas may enable you to do things you have never done before.

Staying on course.

To ensure the success of any new project you must be able to measure its effectiveness. At Ajilon Finance Solutions, our experts will provide specific performance metrics that are tracked to ensure the efforts of working capital optimization will create enduring results for your business.

For more information, please contact Jimmie Lederer in our Denver branch at jimmie.Lederer@ajilon.com or call 303.804.5300.