How Much Working Capital Do You Need for Your Business?

No matter at what level you are in your business, every business needs working capital. Working capital takes care of all your company’s operations. Before you begin the application process, you need to know first how much working capital you need.

How Much Working Capital Do You Have?

Before you start seeking working capital, you need to see how much you already have on your own. It is simple to calculate on your own. You need to deduct your liabilities from your assets. Liabilities are your expenses due within the year and your assets are cash flow that can be liquidates quickly.

The total you get after the calculation is what you use for buying supplies, equipment, paying employees and more. By knowing your working capital, you will know how you can improve it by asking yourself the questions below.

  • How will you use the additional working capital? – you need to have an understanding of how you will spend your money and when you can pay it back. It will help you understand where your funds are short.
  • How much working capital do you need? – examine where your revenue is coming from and how it is going out.

Also, consider your season. Depending on the type of industry you are in holidays may be booming for you or they might be slow. Even if your business is not a seasonal business, most businesses have a season.

Track Your Working Capital Regularly

Having enough working capital is important so that you can fund operations and take care of any emergencies. Even if your working capital is positive, it could fluctuate. Knowing your financial activity will help reduce damage from potential threats and help you stay on top of your business goals.

Here are some things you can do to keep track of your working capital:

  • Use a financial system or software
  • Review your assets and liabilities
  • Use what you have learned about your business to figure out how much working capital you need

These three things should be reviewed regularly so that you can see what changes you need to make for your business.

Steps to Take for Acquiring Working Capital

  • Start by tracking your numbers
  • Pay down your temporary liabilities and add more funds
  • Come up with a target number and the amount of liquid assets you want to maintain
  • Create a plan to handle any emergencies that may arise

The Bottom Line

A business always needs working capital, and it is important to learn how to manage it properly. Your business should me making money and paying down any debt you have in the process. This will free up more cash flow for you. Having a system to manage cash flow will help continue to grow your business.