NEED FOR WORKING CAPITAL (NCG)

The management of Working Capital Requirement (NCG) is one of the crucial elements for the success of a company, regardless of the productive sector in which it operates. The importance of mastering the concept is not only in managing cash flow, but also in the effectiveness of long-term strategies such as sustainable growth, financing and profitability.

The management of NCG has a strong influence on the financial health of a company and may mainly compromise its ability to honor commitments, since its effect derives from short-term relationships (Operating Current Assets and Liabilities).

As discussed in the articles The Importance of Cash Flow, Corporate Governance: Business Budgeting and Corporate Governance: Zero-based budgeting, companies have a series of indicators, tools, and information to assist in decision-making, and the NCG is one of those indicators. A company's NCG can be decomposed through the analysis of the Cash Conversion Cycle (CCC), which reflects the number of days in the cash cycle and the capital needed to keep the business going.

• Average Payment Term (PMP): estimate of the average time elapsed between purchases made, but not limited only to Suppliers (they also include Payroll balances, Raw Material Purchase, Taxes and Fixed Expenses) and their disbursement (payment).
• Average Storage Time (SME): estimate of the average time elapsed between the production/storage of a product and its commercialization.
• Average Receipt Time (PMR): estimate of the average time elapsed between the occurrence of sales (product or service) and your actual receipt of the resource.

Based on the combined analysis of the above indicators, it is therefore possible to determine the Working Capital Requirement (NCG), which is represented mathematically, by the difference between investments in business (Operating Current Assets) and financing (Operating Current Liabilities).

According to the Accounting Portal, in a survey conducted by Sebrae-SP, 27% of new companies close their doors in the first year, up to 50% of those that close their activities in the first 4 years. The same research identified that, among the 6 main causes of bankruptcy, 3 are related to entrepreneur actions that lead to the deterioration of the financial health of the business, and one of the main misconceptions concerns the lack of attention to the Need for Working Capital. For the use of capital in production to be optimized, managers must ensure that the stocking/production process and invoicing (SME and PMR) are as short as possible, and that they also have better (longer) deadlines when buying inputs with their suppliers (PMP). Any Business Budgeting aimed at sustainable growth, managers must pay attention to the effects of the NCG. Production growth requires not only investments in fixed assets in the long term, but it also requires fixed capital ($ NCG) to enable it to finance the growth effect. Growing at any cost, just prioritizing Net Income, can create an irreversible financial trap.ARTICLE WRITTEN BY ISABELLE COSTA — ASSOCIATE OF FC PARTNERSGo to our site: http://www.fcpartners.com.br