About Working Capital

Many small business owners are constantly looking for ways to improve their operations.  One way to increase effectiveness is to make sure your business has the correct amount of working capital.

Working capital is technically defined as current assets minus current liabilities and is a good measure of a business’ efficiency.  If a business has a small amount of working capital, it could be suggestive of problems within the company’s operations.  For example, the business may have too much cash tied up in inventory or may have customers who are slow in paying for purchased goods or services.  If a company’s working capital remains low or declines over time, it may also run into problems repaying its debts.

Each business has it’s own unique amount of working capital that enables the company to operate optimally. It is important for businesses owners to evaluate the appropriate amounts of cash on hand their business requires. Having the right amount of working capital or liquidity will ensure everything gets paid when it needs to be paid.

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