Working capital – Ensures the health of your business

In order to run a business smoothly, one needs regular funding and financially strong back support system. The entire structure of business lies in proper planning, setting up of business and adequate implementation of the plan. And to execute all these functions, companies need funding that can be used for daily activities. The capital that is used in day-to-day activities for the smooth running of the business is known as working capital. It acts as the financial backbone of an organization. The proper calculation of this capital depicts the financial strength of a company and reflects the available cash flow that is required to meet up with the operating expenses and short-term obligations.

What is the importance of working capital?

Irrespective of the size of your business, maintaining a good balance in the capital is an integral part of business activity. It is crucially important for small companies as they cannot access the financial market to borrow sum and to survive in the start-ups till the break-even point. It is important for small companies to keep a track on their initial funds to keep their business running. In simple terms, it is the remaining cash that left with a business after paying off their current liabilities.

It is responsible to a larger extent for the overall health of the business as it reflects various activities of business that include revenue collection, inventory management, payments made to suppliers and debt management. The amount of capital varies from company to company irrespective of their industry.

Types of working capital:

As mentioned earlier, there are varied forms of working capital that are maintained in a business. Here, we discuss its types:

• Gross and Net Capital - The total value of current assets possessed by a business is known as gross capital and the value remaining after payment of current liabilities is known as net capital.

• Permanent Capital - It is the minimum amount of capital that must always remain in the business in the form of cash or stocks or account receivables. This value is required by a firm for performing its day-to-day activities. These funds are mainly derived from long-term resources.

• Variable Capital - Just like permanent capitals, these funds are drawn from short-term resources. The necessity of funding fluctuates in a business. The requirement may increase or decrease from time to time depending on various factors, this capital helps the business to pay off the payments.   

Where to search for working capital funding?

From time-to-time conditions, companies search out for external sources which can provide them working capital. Certain companies provide funding to small businesses with the motive of supporting them to develop in the market. The businesses have to pay off the loan after a certain term. One of the reliable companies that provide financing to small businesses is “Small Merchant Capital”. They provide liquid capital to the businesses for a certain period. Interested companies may visit their web link smallmerchantcapital.com to know about their terms and conditions. Companies can avail funding of $5000 to $300,000 depending on the necessities. So, visit the site without wasting any time.