Working capital can be the lifeblood of a company’s growth. It’s simple. Take your current assets minus your current liabilities, and the difference should equal your working capital.
If you have current assets of $2 million and current liabilities of $1,000,000, your working capital ratio is 2:1.
It is a financial metric representing operating liquidity available to a business or organization. This can include governmental entities. In addition to fixed assets such as your equipment, working capital is considered to be part of operating capital. It can hold the key to your company’s success.
Companies that having a negative working capital may have a hard time growing. However, companies with a positive generally are able to grow and expand. You may say, my number is positive, but how do I turn that into cash to grow my business? A business loan consultant will get to your bottom line to find ways to take advantage of your positive. Most business owners put all of their money back into their business. Over the years we have recommended our clients purchase their building. One client that did go ahead and purchase his building sold the business just a few years later but kept the building. He then rented the building to the new owner. This strategy provided this client a great retirement.
There are several reasons you might need additional working capital. Maybe you do more business in one season verses the other. Gear up for your busy season. Be cognizant of the times when you are operating and there is less money coming in. Make sure you have the funds to pay your suppliers as well as employees. If you have project-related expenses, the additional can cover that too.