Working capital is what determines the value of a company after subtracting the liabilities from the assets. In order to determine the financial health of a company, a business analyst must consider whether there are enough assets in the company to pay the current liabilities and how difficult it would be to convert those assets into cash.
What are the Components of Working Capital?
When thinking about the working capital of a business, we look at the assets and liabilities of the business. Under assets, we have the true sources of working capital:
On the liabilities side, we have items that must be paid:
Long-Term and Short-Term Finance Sources
These two are looked at differently by the experts. If you have a lot of short-term debt, you are seen as financially vulnerable. On the other hand, long-term debt is a capital expense, an investment into the company.
Leverage Assets to Obtain Working Capital
There are several ways that you can leverage your assets to obtain liquidity sooner. There are also companies that will purchase your accounts receivable or the accounts that are already in collections for a percentage of what is owed. This way, you get the working capital you need, and they can make a profit.
Working Capital Business Strategies
Be sure that you consistently keep an eye on your working capital sources and know that, if necessary, your assets can be liquidated to provide you with the cash you need to keep your business running. If you decide that you want to look closer at some sources of working capital for your business, contact Growth Capital Team and they can get you on the path to getting the money you need without having to liquidate your entire company.