Working Capital Management

All businesses, regardless of their size, require excellent working capital management to ensure positive cash flow, remain in business, and grow. Working capital management involves two fundamental questions, what is the appropriate amount and mix of current assets for firms to hold and how should these assets be financed. Firms must carry a certain amount of current assets to be able to operate smoothly.

Initially, the business owners analyzed their pro-forma statements to gain a better understanding of where and what type of opportunities existed for them. A pro-forma statement provides the investor, or bank, in Finagle A Bagel's case, to demonstrate a proposed change, planned transactions and expenses, restructuring costs, other accounting charges, or future earnings for the company. (Investopedia, 2014). This is a financial statement that helped the owners support their request from investors.

Some of the strategies Finagle a Bagel owners used to manage their working capital included maintaining a very good working relationship with their bank so when additional funds were needed bank extended them a credit. They carefully analyzed the opportunity cost, borrowing versus using their own funds. Borrowing required paying interest on borrowed funds and using their own funds had the possibility of reducing working capital. They also carefully evaluated owning versus renting and based their decisions upon the long term versus short term needs. They established terms with the businesses they supplied to in order to get paid in time and avoid blocking their funds for longer periods of time. They also established credit terms with suppliers to have enough time to be able to sell their product and receive payments.