Managing cash flow can be crucial for any business. To a small company, proper management could make the difference between staying in business and closing the doors. In order to make the most of the cash flow your business has available, it may be helpful to understand the basics of working capital.

What Is Working Capital?

Basically, this amount can be determined by subtracting the current liabilities of your business from its current assets. Your assets might comprise such items as accounts receivable, cash, and inventories. Your liabilities include such items as accounts payable. The balance after subtracting that amount is generally the amount of cash flow you have to work with, so you may accomplish such vital tasks as paying your employees, reimbursing vendors, and purchasing office equipment.

Kinds of Working Capital

Your small business will likely be focused on two different types of cash flow. The first is a more temporary kind, which you might use to handle everyday expenses. You need to have this cash in order to keep your business afloat.

The other kind of cash flow is generally utilized for long-term projects, such as expanding your business. This capital is different in that it is not typically used to meet the needs of daily operations. Having this money available can be critical when you are faced with an unexpected expense. 

Why Working Capital Is Important

If you are just starting a business, you may not realize how vital consistent cash flow really is. In fact, if you do not have the money needed to pay for necessary expenses, you could soon find your business struggling. Capital provides your company with the means to handle emergencies, to grow when business is doing well, and to pay off your short-term debts.

Learning to manage your working capital efficiently may take some time and practice. If you don’t currently have the cash flow required to run your business, contact Capital Connex for solutions.