Making my capital work more effectively

Healthy capital is necessary for sustaining any growth-oriented business. We’re here to help you make your capital work for you, so that you can focus on achieving your business goals.

target arrow icon

How can I effectively manage my capital?

While capital management takes time and adjustment, it has the potential to unlock valuable opportunities for profitability. Use these suggestions as a jumping-off point for how to approach your planning.

The first part of your capital management plan will be ensuring that you can sustainably afford all operational expenses. Take time to identify and address areas of business weakness, and work to improve your operational efficiencies. This will allow your company to run as cost-effectively as possible and bring down your working capital needs.

Capital management also involves cash-flow planning. Track your accounts receivables and accounts payables to understand how much liquidity is needed at each stage of your business cycle. You can also use ratio analysis—an evaluation of key ratios like the working capital ratio, price/earnings ratio and collection ratio—to track the health and sustainability of your operations.

Make sure that your company has a safe amount of liquidity at all times—this amount varies by company, but many corporations keep their cash reserve target at around 3–6 months of operating expenses. Consider negotiating with your suppliers to stagger major cash outlay. This will help prevent you from having to access all your liquidity at one time. Your company may also benefit from active inventory management, which will allow you to maintain just enough supply to meet demand, while retaining liquidity.

How can I optimize my capital investments?

The opportunities available to corporate investors come with varied levels of risk and yield, and finding the right mix of debt and equity options can often feel like a balancing game.

One investment option is to channel your capital toward the fixed income market with the purchase of bonds or securities. These instruments pay a fixed-period payment until maturity, when the issuer returns the principal amount. The biggest risk associated with fixed income assets is of the lender defaulting on the payment. If this doesn’t happen, however, fixed income assets can provide a steady income stream when normal business operations are slow—providing you with a working-capital safety net.

If maintaining liquidity as you invest is a priority for your business, another option is to consider investing capital in the money market (a subsection of the fixed income market), comprising financial instruments with short maturities and high liquidity. Diversifying your portfolio with money market assets will ensure that you retain enough liquidity to meet your working capital needs—while still making interest.

Whatever your capital investment strategy, be sure to regularly evaluate your portfolio to ensure that your capital is being optimized at levels of low risk and high yield. 

Important Disclosure Information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.