What is Working Capital?
What is working capital? Simply put it is the difference between a company’s current assets and its current liabilities. Regardless of a company’s size or industry sector, working capital is an important metric in assessing the long term financial health of the business. Working Capital ensures that adequate cash flow is always maintained to meet its short-term commitments. In times of economic uncertainty, having such financial protection is vitally important.
The Covid-19 pandemic has presented a number of working capital challenges for businesses across a range of industry sectors. Economic uncertainty will continue into 2021 and businesses must look at new ways to finance working capital in order to maintain operations. Managing working capital effectively should therefore be a top priority for CFOs, now, more so than ever.
When do you need working capital?
As a business owner, there are two main scenarios where you would possibly need working capital.
1. To keep your business afloat when there’s less money coming in. For example, due to an economic slowdown or if you run a seasonal business and have marked slower periods.
2. To fund growth or big projects. For example, if you’re starting a large project that you only get paid for upon completion, you need capital to keep you going during that period.
If you don’t have that capital, you’ll have to find it or risk possible project failure. You could get a bank loan, but the application process takes a while—and even then, approval isn’t guaranteed. The solution is to find funding elsewhere. There are pros and cons, so as a small business do your research! At Cash Flow Capital we pride ourselves on being honest and helping business owners find the right solution for their needs. Reach out to us if you have any questions