Working capital is the available cash that your business has on hand to run your day-to-day operations. If your income exceeds your expenses, then there is cash available for you to use on your company. If you don’t have capital, then your business can’t function. You have to pay rent, bills and upgrade your equipment. All of this takes capital.
A successful business owner knows how to maintain capital. They can do this
Categories of Working Capital
The two categories include the day-to-day costs of your business and the long-term cash that you have for large projects or business plans. You need to think about the present and the future and ensure you have the money for it.
Why Businesses Need It
If you don’t have capital, you can’t afford the expenses that you have to cover if you run a business. Every company has different cycles. Money cycles in and out of the company at different times. Some seasons will be more profitable than others. If you can create a strategy around these times, your business will thrive. This is why you need to make sure you have it through financing options.
Different Forms of Capital
If you need capital for your business, you can receive it through multiple sources. First, you can seek it out from the SBA. The SBA offers long-term and short-term financing options for small business owners.
The next forms come from credit lines. You can receive business credit lines and trade credit. Business lines of credit are a lot like a credit card. You and your lender agree on an amount, the terms and the interest rates. Likewise, you don’t have much in the way of restriction on what you buy. Trade credit allows you to buy good and services without immediate payments.
Next, you have accounts receivable financing. This is the process of selling invoices to a factor company. Then, the factoring company offers you immediate cash. There is also equipment financing. This is where you take out equipment loans or leasing. You pay for your equipment over time, rather than upfront.
You can also apply for a business credit card or look for advances. Merchant cash advances and advances from customers will give you immediate cash. Think of it as early payments for future goods and services.
Without working capital, it’s impossible for a business to thrive. Fortunately, there are financing options that will help small businesses stay afloat and have the cash to follow through with day-to-day operations and long-term goals.