When you’re running a business, it can be easy to feel overwhelmed by the amount of things that you need to keep track of on a regular basis. This can be especially true when it comes to dealing with your finances and understanding the finer points of managing your books. While it may seem like a lot to take in and deal with, the good news is that with a little effort it can be easy to gain a firmer grasp on your company’s finances and how they impact your business’s growth. 

What Is Working Capital?

When you are working to better understand your company’s finances, it is essential to make sure that you are educating yourself about working capital. Not only do you need to understand working capital, but you also need to know how it differs from things like cash flow, as these two things may be easily confused. 

Working capital is the current amount of assets and liabilities that your business has. Assets can include all cash and liquid assets, as well as equipment that your business owns and inventory as well. Liabilities include all debt and unpaid bills, as well as money that is owed to your business. What you have left of your assets after your liabilities have been subtracted is your working capital. Cash flow, on the other hand, refers to the amount of cash flowing into and out of your business. 

How Does Working Capital Impact Business Decisions?

There can be multiple reasons why it is important to understand working capital. The clearer of an idea that you have about how much liquid assets you have at your disposal, the better of an idea you have of where your business truly stands financially. You will know more about what you truly possess, and what business decisions you can afford to make without having to obtain a loan to fund them.

Beyond having a better picture of your business’s finances, you will also likely feel less stressed knowing how much assets you have on hand, and knowing that you have what you need incase of an emergency. If you don’t have enough funds to cover emergencies, then knowing that will better enable you to make the adjustments that you need to to increase your working capital. 

Last Thoughts

Running a business can be difficult, especially when it comes to understanding all the ins and outs of your finances. The good news is that by taking some time to understand things like working capital, you can make more informed decisions for your business.