Wondering what working capital is? As leading chartered accountants in the West Midlands, here at Thomas Nock Martin, we can offer you and your company a wide range of financial services – including working capital management. Based in the Black Country, our team of hardworking and experienced accountants are incredibly successful when it comes to financial strategies and support, so you can count on us to help you achieve your business goals.
What is working capital?
So, what is working capital? Working capital is the capital that companies will need in order to fund their everyday finances. These financial obligations are the ones that are required in order to run the business successfully; they can be things such as salaries, maintenance costs and stock replenishments. As a new business, a steady cash flow can sometimes be harder to establish at the beginning, which is why you need to conduct an asset calculation regularly to make sure your company remains financial stable.
How to establish working capital
There are plenty of different ways to provide your company with sources of working capital finance. With new companies however, working capital is usually generated through buying more shares in it or lending the company money.
Buying more shares to fund the company
Buying more shares in a company can prove to be a very worthy investment and is a great way of generating working capital for the company. However, it is worth bearing in mind that you won’t see a return on the investment for a while, and the company can only pay out dividends when it’s in profit – for a new business this could take some time.
Loaning to your company
Loaning your company money means that you can be paid interest from the outset. Loans are also much more flexible than dividends – you can receive your money back (sometimes all of it) without having to cancel share capital. If you are married or in a civil partnership, there is also the potential of taxes advantages when lending your own money to the company.
Borrowing money to lend
The tax break can also work if you have a partner but are not married to them – however, if you are officially married, your finances by law are tied. This means that you will save tax when your partner is paying tax at a lower rate than you. With this in mind, in theory, your partner can lend you money, and charge you interest. You can then lend the money to your company, charging a similar rate of interest too.
Find out more
Here at Thomas Nock Martin, with our business advisory services you can find out everything you need to know about finances and taxes for your company. If you would like some more information about what working capital is then head to our website today. Alternatively, you can call 01384 261300 to speak to a member of our helpful and friendly team.
If you have found this blog helpful, you may wish to read our previous blog on Self-assessment Deadlines