Working Capital
What is working capital and why is it so important for a business
What is working capital?
The formula for calculating working capital is current assets – current liabilities = working capital.
For a business owner, the term assets, refers to everything of value that he/she owns, within the business. Assets can include inventory, equipment and cash. The term current liabilities, is defined as a company’s debts or obligations that are due within one year.
Why is working capital important?
Working capital is the blood that flows through the veins of your business, keeping it alive and functioning. Working capital is the readily available cash that you have to make business purchases, buy advertising, etc., which in turn, will produce even more money for the business.
When a business owner subtracts his/her current liabilities from his/her current assets, the number should be positive. If the number is negative, it is time for the business owner to take fast action.
How do you get working capital?
When calculating your current working capital it is important to consider all of your assets. This may mean searching for assets that you may be unaware of, or assets that you have not put to good use. Extra employees and unused equipment are examples of assets that are going unused and can easily be used to produce working capital. You can do this by letting unneeded employees go home early and by selling or renting unused equipment.
As you now know, acquiring cash is not the only way to increase your working capital, but it is one of many ways. Merchant Resources International’s business cash advances provide working capital for small business owners. With a short application and a few documents, a small business owner can have $5,000 to $500,000 to plunge into his/her business, and best of all, these funds can be renewed every 3 to 4 months.