A Beginner’s Guide to Working Capital
Using working capital to help your business grow is an important part of keeping your company alive and thriving, regardless of its size or niche. It’s something that should be on the radar of any small business owner. But you may find yourself feeling confused about how it works or why it’s necessary in the first place. Luckily, you are not alone in this.
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What is Working Capital Financing?
Current assets are cash and things that you can convert into cash within a year (such as accounts receivable, inventory, and prepaid expenses). Current liabilities are accounts payable, expats taxes owed in less than a year, interest payable on debt within a year, and short-term loan repayments due within one year.
Working Capital Financing for Small Businesses
Starting a small business is exciting as well as overwhelming, and one of the most crucial parts of that process is financing your operation. Small businesses require a lot of capital, and since you cannot take on personal loans in your name, you must think about financing from day one. Let’s get an understanding of startup capital.
A woman-owned business is one where at least 51% is owned, operated, and controlled by one or more women who control management and daily operations. If a woman owns less than 51% of an eligible business, she may still receive woman owned business grants if she can demonstrate her active role in management. This will require sufficient documentation showing that she maintains day-to-day involvement in strategic decision-making. However, according to Lantern by SoFi, “Small business grants for women are frequently reserved for established businesses.”
The Basics of Working Capital
If you’re in business, you must have employees and customers. If so, then you need money (working capital) to conduct your day-to-day operations. But how do you know how much working capital is enough?
Types of Funding
There are plenty of resources available to you to help you better understand what working capital financing is and how it benefits your small business. First, you should know that it can be attributed to two factors: 1) It costs a lot of money and time to apply for government grants. 2) Government grants are only available for certain types of businesses.
Thankfully, there are other types of funding available for businesses in all stages of development, including startup funding, loans, angel investments, and venture capital.
How is Working Capital Calculated?
To calculate working capital, subtract a company’s current liabilities from its current assets. The four primary variables used in working capital calculations are accounts receivable, inventory, accounts payable, and short-term debt. In essence, they all boil down to how much money you owe and how much money institutions owe to you.
A working capital loan is a flexible and easy-to-use alternative financing tool. Whether you’re looking for term loans, lines of credit, or invoice factoring, you should hire a professional to help you find solutions that will help your business grow.
