It’s an unfortunate fact of life that, generally speaking, you have to pay for stuff you need. And paying for that stuff – stock, raw materials, equipment, space, people to work for you – is part of owning a small business. Of course, you need to be able to generate enough money to meet those expenses. And to ensure you are in a position to do so, you need to understand your working capital.
Working capital is a way of measuring the short-term financial health of a business. Defined as the difference between current assets and current liabilities, your working capital position tells you whether you have sufficient cash on hand to pay off your short-term financial obligations.