Everything You Need to Know About Working Capital
How’s your working capital doing? If you’re unfamiliar with this common calculation, you may be missing the big picture of how your company is really performing. Profits may be rolling in, but you need to understand how your cash flow and available capital, or lack thereof, could affect your business. Many small businesses fail due to cash flow reasons, so calculate your available capital today and use it wisely to grow your business.
Roughly speaking, simply subtract your current liabilities from your current assets to arrive at your available capital. This net amount gives you an idea of the available resources you have to invest, make payments or respond fluidly. Most businesses don’t fail due to a lack of profits, but they don’t have the liquid capital necessary to handle a sudden expense or to purchase enough inventory to continue to handle their projects.
Your current assets are any item that your business owns that has a monetary value. From the actual money in your checking account to the immediate cash value of your invoices and inventory, this gives you an idea of the amount of capital available to you today. You can only count invoices if you’re able to receive them quickly, otherwise, they may be too late for your liabilities.
Current liabilities are any debts that remain outstanding. This could be literal debt for a loan, upcoming bills or taxes. Depending on your use of financing, having more current liabilities than current assets puts you in a very dangerous spot. Missing payments, making late payments or quickly selling off inventory or machinery to improve your current assets can cause your business to go into an inescapable downward spiral.
Thankful, there’s plenty of ways to improve your current assets and avoid any working capital issues. By utilizing the latest flexible financing options, you can create additional assets to balance your cash flow issue. While these loans create more liabilities, in the long run, they allow you to escape the cycle of late payments and put your company back on its feet.
Discover how you can optimize your working capital today. Whether you need to reduce your inventory in storage, accelerate your receivables or take out a line of credit to get you through this tough time, there are many ways you can improve your business and balance your cash flow without missing a payment. By taking charge of your finances and improving your current assets, you can grow your business and take on new, larger clients with confidence.