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Budgeting is required everywhere to meet out the expenses and to know about the expenditures. It is a perfect tool to manage and keep all the records. Earlier days budgeting was a very tedious job, you will have to keep the hand written accounts for your expenses and income. To match the account at the end was really very hard. Now as per the requirements money budgeting software are available, which has made the process of budgeting very convenient and easy. This can be considered as a perfect tool for finance management.

Especially for the businesses these software are a boon, which gives a clear picture about their finance and with the help of these they can get the correct results and figures. There are various kinds of personal finance budgeting software that are available as per the likings and the function requirement one can choose best personal budget software. These Software types include Quicken Premier 2009, Microsoft Money, Mvelopes Personal Budgeting System and Mint.com. Among these types some are the online software tools.

This money budgeting software tracks every aspects of the finance like income, expenses, real estate and your investments. It can calculate the bonuses, incentives and the most important tax calculation. Your best personal budget software can minimize the risk of any mistakes in the accounts. All the things will be clearly mentioned in this software you can cross check it very easily. Out flow and inflow of the money can captured easily with this software. This software is very easy to use and easy way to control over the finance. One can learn it very easily and quickly.

Make or Break

Managing working capital is a critical component of financial management. It can make or break a company.

Inadequate working capital can put a company in jeopardy rather quickly due to liquidity problems. On the other hand, excessive working capital strains the companys finances.

Accounting Definition

Accounting defines working capital as Current Assets less Current Liabilities. It is also known as Net Current Assets. Current assets are those which are considered liquid and are convertible or expected to be realizable in cash within a period of 12 months from the date of the financial report. Common examples include cash, inventories, accounts receivables, prepayments and marketable securities. Current liabilities are those which are expected to be repaid within a period of 12 months. Examples include bank overdraft, short term borrowings, accounts payables and accrued expenses.

Operating Standpoint

Operationally, working capital indicates the ability of the company to finance its current operations and to meet obligations when they mature. It measures the companys ability to pay daily bills from a liquidity

standpoint.

When it is Inadequate

If there were more current liabilities than current assets, the result is called Net Current Liabilities, Working Capital Deficit or simply Negative Working Capital.

If all the liabilities were to become due and payable immediately, the company does not have sufficient liquid resources to pay them. This could potentially lead to a going concern problem, which means that the company may not have the ability to continue in operations if it could not successfully find sufficient liquid resources to settle its obligations quickly.

From a financial ratio perspective, a companys working capital position is also represented by its current ratio. Current ratio is calculated using current assets to divide by current liabilities. A current ratio of

less than one means that working capital is negative. For example, if current assets were 0 and current liabilities were 0, the working capital deficit calculated would be (). The current ratio is computed as 100/120, giving 0.83, which is less than one.

Remedial Strategies:

To relieve working capital deficit, the following strategies are commonly adopted:

a. Raise Equity

A company can issue more shares to existing or new investors to bring in fresh funds. This infusion of equity will help to raise cash. The side effect of this may be to dilute the interest of existing shareholders who do not wish to inject further equity into the company.

b. Selling Non-current Assets

Non-current assets are those which are not expected to be convertible into cash within a period of 12 months from the financial report date. These are typically fixed assets such as property, plant and equipment. Included

here are also long term investments in other companies. A company can sell its non-core assets to raise cash to enhance its working capital position.

The other way of liquefying its balance sheet may be to enter into a sales and leaseback transaction of its property. This would result in cash infusion into the company.

Ceasing further capital expenditure would be wise till the cash situation and working capital position improve.

When Having Too Much is Bad

On the other hand, having too much working capital may not be ideal either. This is particularly so if the expansion of working capital is due to the rise in inventories and trade debtors, especially when they are

rising faster than sales revenue.

Inventories

Excess inventories pose several problems for businesses. The first is that of obsolescence risk. It could mean physical deterioration as well as technical or market obsolescence.

The second problem is that inventories drain cash. Liquid cash is tied up until the products are sold and the money collected from customers.

The third problem is that inventories require storage facilities. This takes up valuable space and may cost a business in terms of rental expense or opportunity cost in terms of facilities tied up.

If a business has old inventories, it would be advisable to clear them out quickly and free up the cash so that it can be redeployed for better uses.

Trade Debtors

Trade debtors represent financing by the company to its customers. Most often, this is interest and collateral free. On the other hand, the company may need to obtain bank financing on which it incurs interest.

When trade debtors build up, it may also be an indication of lax credit policy and poor follow up on outstanding debts. It may be worthwhile to engage additional resources to recover these receivables more quickly than letting customers take their time to settle their invoices way beyond the credit limit given.

It Boils Down to Efficiency

The more efficient a business can manage its inventories and trade debtors, the better it is for liquidity. More cash would then be available for growing the business, reducing finance costs and paying shareholders

dividends.

Conclusion

As we can see, it takes prudent financial policies, management discipline and vigilant monitoring to ensure that a fine balance is maintained for working capital. But the effort will pay off handsomely for the business

with the will to do so.

An important tool companies adopt to send a message to the investors that the company means business is to cut capital expenditure and reduce non-core assets.  Usually this is met with more investment or better stock price from the market. What is the message that the investors are receiving that entices such a reaction?  Usually, the message means that the company is trying to reduce cost and become more efficient. They are indicating that the company is trying to get more assets available that they can use for operational expenses in the short term for their financial health. In financial metrics this means increasing the current assets or decreasing current liabilities.

A good measure to identify this is the Working Capital (WC).

Working Capital = current assets – current liabilities.

Current assets are cash and other assets that can be converted to cash within a year. Current liabilities are obligations that the company plans to pay off within the year. Working capital indicates the assets the company has at its disposal for current expenses. It can be thought as the circulating capital of a business. The process of managing the WC efficiently is called Working capital Management. It’s one of the important aspects of financial management. An excess of working capital many mean that the company is not managing its assets efficiently. It’s not using its assets to get a bigger return or better profit. An aggressive company may keep its working capital smaller. A very low working capital may mean the company may not be suited well enough to payoff its short term obligations.

This decision of how to manage the working capital of the company depends on the Working capital policy of the company. An important factor that determines the policy is the industry in which the company operates.  For Example, an IT service company may not have a lot of shot-debt in terms of inventory but it still needs to pay wages, insurances and other expenses like rent. The company needs to have a policy that makes sure it sets targets were it gets paid as the project progresses so it can keep paying its staff in time. The company has to manage its account receivables according to this policy. Some industries operate in a high profit margin that they can afford to have a longer term on the account receivables because the higher cash balance part of the current assets. A good example is a company like BP, which is able to survive till now after the big oil spill disaster in the Gulf.

The Collection Ratio helps project this aspect of a company

Collection Ratio = Accounts Receivable/ (Revenue/ 365)

Collection ratio tells us the average number of days it takes a company to collect unpaid invoices. A ratio which is very near to 30 days is very good since it means that the company is getting paid on a monthly basis.

Cutting costs and shedding non-essential assets to make the company leaner is one of the attributes of working capital management. But this strategy cannot be sustained. The company cannot keep cutting costs without sacrificing service. Once the company becomes lean enough cutting costs will become detrimental to its operations.

Another attribute that strongly impacts working capital is sales. It is the ability of a company to sell its products fast enough to get the money back to put back into operations or supplies for producing more materials. Moving inventory fast is always a good plan for a company. It also helps in reducing costs associated with holding and moving inventory. A good ratio that helps put the attribute in perspective is inventory turnover ratio.

Inventory turnover ratio= sales / inventory

Alternatively,

Inventory turnover ratio = Cost of goods sold / inventory

The ratio shows the efficiency the company has in selling its products. The higher the ratio the better the company is able to move the products. Again this could be dictated by the industry, for example, a daily products company is usually forced to sell its products fast enough or lose it. The ratio also provides a good insight into how a company is doing within an industry. The direct ratio of companies can be compared to see how well the company is able to sell the products in comparison to its competitors.

Financing is another attribute of Working Capital management. Companies tend to finance their way out of a need for short term expenses by taking loans. From the balance sheet it is clear that financing increases liabilities, so the only option companies have to increase Working capital is though long-term debts that have a smaller impact on current liabilities. This way their short term cash balance increases providing the cushion the company needs for its short-term operating needs. Since obtaining long term debt depends on the credit rating of the company it becomes difficult for smaller or newer companies to use this attribute of working capital management.

Debt-Asset ratio provides a good insight into how much of the company’s assets are being financed though debt

Debt-asset ratio = Total liabilities / Total assets

Financing for short term operations may not immediately signal an issue with the company, it may be that the company has realized an opportunity that it needs to act on immediately which would increase the prospects of the company in the long term. Companies that have an aggressive working capital management policy would be using this strategy. But this is always riskier since the company would accumulate a lot of long-term debt that could eat away at the profits or even become so big that the interest expense can impact the current liabilities.

Working capital management becomes a very important aspect for a company since it is the first line of defense against market downturn cycles and recession. A company with cash is usually in a good position to make better use of the opportunities the markets provide. Its can spend the money on R&D for coming up with better products. Increase in current assets, especially, increase in account receivables due to growth is sales have to be managed efficiently. Ability to control working capital plays a significant role in the survival of the company.

If you are shopping for a car you need to get mentally prepared for the salesperson. Plan your negotiation tactics, because you will need them in the trenches of the deal. You need to also prepare yourself for another major player in the auto-buying process, the finance manager.

Find Free: Auto Loan Help

When you are searching for a new car, the phrase “Buyer Beware” is a good term to keep in mind.. You have heard the stories about the pushy salesperson that will do anything to sell a car. The other person who will have a major impact on your car purchase is the finance manager himself. You need to ask a few questions when the two of you make the deal:

1. Find our the interest rate of the loan.

The interest rate is the most important factor to a great purchase. You can ask the dealer what the APR is when you are comparing loans. Ask him how they figure their APR, remember many lender have different ways to figure rates. This will help you know exactly what they are figuring in their loan cost.

2. Find out about any auto loan penalties and fees.

Be careful because allot of dealers like to hide fees with in the loan. You need to know what all the fees are that will be included in the loan. Try to avoid any extra penalty fees the dealer may try to charge for paying off the loan early. Latter on this may cause a problem if you decide to refinance, so try to avoid this.

3. Get a final approval, before you leave, on the finance package.

The finance manager can mislead you by telling you the deal is done, then calling you the next day to say the deal fell through. They will of course have another lender that will do the deal at a much higher interest rate, and additional fees. Do not get caught in this trap, make sure you have a done deal before you leave the lot.

4. Be careful with additional credit insurance.

The auto dealer likes to generate extra revenue by selling you credit life and credit disability policies. Make sure you get all the details for one of these extras before you agree and compare the policy with others out there.

These four facts will help you with you auto loan and make you prepared for the finance manager.