Whether your business is struggling to grow or not, working capital can help support your running costs, it can also help fund projects and help your business stay stable.
In this blog we will explore everything that you need to acknowledge about working capital which will help you and your business during tough moments and help you acknowledge the big opportunities when they appear.
So, what is working capital?
Working capital is additionally called net working capital. Working capital shows the distinction between the current assets and current liabilities of a company’s cash balance. In other terms, working capital defines the cash your business has left after the money that’s coming in and going out of your business over the next year. Current assets will embrace many various companies’ variables such as the inventories, materials, or customers’ unpaid accounts. Current liabilities are in the form of cash, rent, utilities bill or paying taxes.
It’s very important for a business to have healthy working capital, as it can help the company to grow and invest further into the business. If a business does not have working capital, the business will have difficulty growing or paying investors and may become insolvent.
How to Calculate Working Capital?
Calculating working capital is fairly straightforward, as you have to take the current assets of the business and deduct them from the current liabilities. For example: if a salon business has a current asset of £150,000 and the current liabilities is £80,000 then the working capital would be £70,000.
Why is working capital important and any advantages of working capital?
Working capital is an important aspect of a business that every business must take into account in order for the business to remain debt free or go bankrupt. A business cannot rely on its profits to pay for its bills. If a business has earned £100,000 and invests all the £100,000 at once into the business, then the business will struggle to pay for the current liabilities.
Advantage of working capital
Suppose a business is struggling with a negative working capital, the business can improve its working capital by using a credit provided by financial service who can help improve your working capital. Finance providers can offload solutions for your business such as invoice finance or overdrafts.
Does your business need fast, reliable, and flexible finance? Peak Business Finance would be the perfect solution to your problem.