Analyze, manage and finance their working capital needs

Lack of follow-up or too late an assessment of the need for working capital is a frequent cause of cash shortages for associations. Back to some key concepts and valuable tools.

The working capital requirement (WCR) is defined as the cash that must be immobilized to finance the time delay between cash inflows and outflows related to current activities (excluding investments). Working capital is one of the three basic financing needs of the association, along with operating expenses (costs related to immediate activities, such as salaries, the purchase of raw materials, etc. ) and investments (purchases that have a period of use of more than one year, such as the purchase of premises, computers, etc.). For example, the association BFRlyHills sells clothes for teenagers, made of scrap fabric bought at cost. The activity costs 10,000 euros in charges per month (salary, purchase, rent, etc.). These are covered, on the one hand, by sales to individuals, up to a monthly turnover of 6,000 euros, and on the other hand, by an Ademe operating subsidy of 15,000 euros paid every quarter.

The association has a profitable business model (its income covers its expenses since it has 11,000 euros of income).

and 10,000 euros in charges per month), but its cash flow is degraded by the lag of the subsidy in relation to the payment of expenses. The association therefore needs working capital. If he had a loan-type financing of 8,000 euros, he could not be overdrawn over the year, or even repay the term loan through his profits.

How do you calculate your BFR?

The WCR is calculated from the items that appear on the bottom of the balance sheet, namely receivables (not yet collected), operating debts (not disbursed) and inventories (not sold).[…]

Working capital requirement = inventories + trade receivables + allowances receivable + other receivables + recognized charges

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