Small business answers — NOW!

Working capital management

Question
Why is it important to track my working capital position? 
Answer
Working capital represents your business' liquidity situation, and it demonstrates the ability to fund current operating expenses with operating liquidity. In business, cash really is king, and of course, cash is the ultimate liquidity. But there are other assets that are easily converted to cash, such as inventory and accounts receivable, which are also considered part of your working capital. The working capital number is calculated by subtracting current liabilities from current assets.

One of the best reasons to not only track current working capital, but also to forecast future working capital, is to understand your ability to fund sales growth from your internal resources. By forecasting the impact of growth on your working capital availability, you will be able to identify when and if you will need outside funds, such as from a bank loan. 
 
© 2007, Small Business Network, Inc., All Rights Reserved.
Subject to the Terms of Use of AskJim.biz
Print this page   Bookmark this page   E-mail this page to a friend   Go back to previous page
AskJim ID: 6340