By working capital it is meant the level of efficiency and financial health of a company. The definition seems simple enough, yet there are many business owners who do not have a grasp of the meaning of this simple concept. Simply put, working capital is the cash that a business has for its day-to-day operations. Working capital is really important for small companies that desperately need to survive. The only option leftwhen there is little or no working capital for handling short-term financial needs such as making payroll is for a company to access the financial markets and borrow. The truth is that a business is required to resort to working capital financing at some point in its operation.
The answer to the question “How much working capital does a small business need?” is not an easy one. In order to determine how much money you will need, it is necessary to consider your business type. It is obvious that some enterprises need more money than others, particularly those working with physical inventory. You need to calculate how much money you actually need for keeping the company running smoothly. Another useful tool for doing this is the operating cycle. If your company’s operating cycle is too lengthy, you will not be able to make revenue and pay your debts. Therefore, you should make a thorough analysis of the number of days it takes to distribute your product in exchange for payment.
The good news is that there are several small business funding options. If you are having trouble looking for working capital, you should consider the following options:
The choice of the financing option depends largely on why you need the fund. For instance, if you have issues with slow-paying customers, you should factor your invoices. On the other hand, if you need a larger amount of money, you can try a short-term loan. The line of credit will allow you to borrow for a short period of time and you will thus be able to deal with seasonal operational costs or emergency issues. If you are interested in acquiring a line of credit, you need to have a strong balance sheet and good financials. Otherwise, your request will not be accepted.