Return to site

Why Working Capital is Crucial for Business Development

Working capital of a business is the difference between its current assets and its current liabilities. It shows whether a business has sufficient cash flow to cover its debts or expenses.

The important factors concerning the management of working capital are – cash management and inventory management.

Extra capital may be required to service high-volume orders or expansion of business operations.

Businesses may face problems in their cash flow during lean seasons. Under such circumstances, the company can take a working capital loan.

Also, immediate funding may be needed in case of emergencies. A company may have to meet obligations due towards suppliers or employees, even though payments are due from its customers.

Plus, business improvement requires increased working capital. For instance, a company may be able to avail the benefit of discounts provided by suppliers by making bulk purchases. The business will necessarily have to bear a greater cost to make such purchases.

Different expenses such as payment of temporary employees, or other expenditure not having budgetary allocation will need sufficient working capital as well.

A business needs to maintain a balance of working capital. While an excess of working capital means that suitable investment of cash has not been undertaken, a lower level will disrupt business operations.

Companies can, however, avail a business loan to ensure sufficiency of the working capital in the case of shortages.

All Posts

Almost done…

We just sent you an email. Please click the link in the email to confirm your subscription!

OKSubscriptions powered by Strikingly