Why is working capital important?
Working capital helps you understand the short-term financial health of your business. If you have positive working capital, it usually means you can fund current operations and invest in business growth. Plus, it can help you weather tough economic times.
On the other hand, negative working capital can make it difficult to pay staff, suppliers or creditors if you run into cash flow problems. You might also have trouble raising funds to grow your business.
Having too much working capital isn’t always a good thing. It could mean your business:
- Has too much inventory
- Isn’t investing enough cash
- Is missing out on low-interest borrowing opportunities