The Importance Of Working Capital Management

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Successfully managing working capital is the lifeblood of any business. Let’s first define working capital. According to Netsuite.com, “Working capital is calculated by subtracting current liabilities from current assets, as listed on the company’s balance sheet. Current assets include cash, accounts receivable, and inventory. Current liabilities include accounts payable, taxes, wages, and interest owed. Additionally, key attributes are:

Working capital is a financial metric calculated as the difference between current assets and current liabilities.

Positive working capital means the company can pay its bills and invest to spur business growth.

Working capital management focuses on ensuring the company can meet day-to-day operating expenses while using its financial resources productively and efficiently.

Here are a few reasons why working capital management is important:

Managing working capital successfully helps with meeting your short-term obligations and ensures you have enough liquidity in your business to fund day-to-day operational expenses like payroll, utilities, and other business expenses.

Managing working capital well means that if an operational interruption occurs like Covid you have enough money to keep the business running and prevent major disruptions.

Efficient working capital management can help with managing debt and increasing profitability.

Successful businesses understand the importance of keeping a keen eye on their working capital and cash flow. It is extremely important to put together a plan to manage working capital on a regular basis to ensure your business stays healthy and strong.

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