Working capital (sometimes referred to as net working capital) is the money your business needs to be able to operate from day to day.

​

Basically, it’s the cash you have left, after you account for money coming in and money going out over any given period. It’s a measure of your financial health and a critical tool for making business decisions and getting approved for loans and other financing. 

​

Working capital is needed to help a business expand and grow when times are good and cover “rainy day” needs, plus that working capital keeps the lights on when times are rough.

​

Managing your working capital successfully is essential if you’re to stay in business. Many businesses that appear profitable are forced to cease trading because they’re unable to meet their short-term financial obligations when these payments fall due.

​

An otherwise profitable, high-growth company may run out of cash because its need for working capital continues to increase.

 

This typically happens when a growing business invests further in inventory and stock, and its accounts receivable (the money it owes for items bought on credit) increase as a result.

​