It goes without saying that access to capital is a vitally important concern for any business. Without the proper resources, businesses may run into a host of problems, not the least of which is the difficulty of simply staying alive in today’s economy. So how can a business owner calculate the proper level of capital necessary to fund business functions? To answer that question, it’s important to become acquainted with the concept of working capital.
Working capital is a measure of the health of a company and its ability to finance its continued existence, as well as expand into new domains if so desired. It can be expressed as a simple formula: The company’s current assets minus its current liabilities. Alternatively, working capital is calculated as a ratio (assets:liabilities). Low working capital will interfere with the company’s ability to pay debts and finance important operations, but high working capital may cause problems as well, possibly pointing to a failure to invest in available business opportunities.
How to find working capital and exploit its potential to the fullest—this is a problem to which business owners devote a significant amount of time and money. Sometimes a company will turn to one of several financing options in times of need, such as working capital loans for small businesses. But there is an alternative to this kind of working capital financing: factoring. This is a financing method that can enable businesses to secure the cash they need in a timely fashion. Also called accounts receivable financing, it involves selling a company’s invoices for immediate cash. Contact Overnite Capital today for more information on factoring.