What It Means to Have Positive Working Capital for your Business
Many business owners know what working capital (WC) is, but fewer have worked out how much their business has on hand. Using this formula is vital if you are attempting to raise funds, obtain a business loan, or team up with a different company on a mutual project. In general, other companies are likelier to work with your company only if its liquidity is high, which shows you can manage your assets and pay off debts in an efficient way.
Working capital includes both cash and other assets which a company has on hand in order to cover its day-to-day expenses. Without adequate working capital, your company cannot pay salary to employees, fulfill orders, acquire customers, or execute scores of other tasks required to grow the business.
The said formula can help you work out how much your company is working with at present. A positive figure shows it has sufficient cash and other assets to cover its short-term expenses and debts. In a different post, we will discuss why you have to calculate your business working capital.