Working Capital

The excess of the value of the current assets over the value of the current liabilities. This value will be negative if current liabilities exceed current assets. 

Understanding your needs

Getting a true understanding of your working capital needs may involve plotting month-by-month inflows and outflows for your business. A landscaping company, for example, might find that its revenues spike in the spring, then cash flow is relatively steady through October before dropping almost to zero in late fall and winter. Yet on the other side of the ledger, the business may have many expenses that continue throughout the year.

Parts of these calculations could require making educated guesses about the future. While you can be guided by historical results, you’ll also need to factor in new contracts you expect to sign or the possible loss of important customers. It can be particularly challenging to make accurate projections if your company is growing rapidly.

These projections can help you identify months when you have more money going out than coming in, and when that cash flow gap is widest. read more here.