The Importance of Working Capital for a Business - Loan Trivia


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Thursday 16 August 2018

The Importance of Working Capital for a Business

The amount of money required to continue the day-to-day activity of a business. The working capital is calculated by subtracting current liabilities (debts need to pay off within a year) from current assets (short-term and are convertible into cash). Current assets are cash, inventory, stocks and bonds, and accounts receivable and current liabilities can be expenditures for paying interests, debts, rent, wages, raw materials, etc. within 1 year.

If you are a start-up, the working capital needs may vary with the business size and production capabilities, whereas, if you have an existing business, you need fund for buying/upgrading new equipment, debt consolidation, expanding to a new location, addressing cash flow constraints, paying taxes, or even improving their credibility.

To tackle the situation, businesses can take the support of a working capital loan.

Business priorities and size- As per the business size and priorities, the working capital requirement will also vary. For example: If you have a paper mill, you need various types of machinery such as paper machine headbox, paper machine press part, MG cylinder, pope reeler, rewinder, and others. Here, the working capital requirement will be very high as they need a large area to set up. Whereas, if it is a waffle shop, you need a few waffle irons and trained employees, which can be fit within a small property, so the working capital requirement will also be less.

To know about the other factors, you can read:

Funding a Small Business: How Much Working Capital Loan is Needed to Start a New Small Business?

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