Working capital is the measurement of the availability of liquid assets a company has to build its business. Generally, companies that have a lot of working capital will be more successful since they can expand and improve their operations. Companies without working capital may lack the funds necessary for growth.

Small businesses often use working capital to pay short-term obligations such as inventory or advertising but it can also be utilized for long-term projects such as renovations or expansion. These are elements in the business cycle that can quickly absorb cash. If working capital dips too low, a business risks running out of cash. Even very profitable businesses can run into trouble if they lose the ability to meet their short-term obligations. Business financing or small business loans can be used as a fast cash option to cushion the periods when the flow is not ideal or readily available.

Cash flow is the businesses life blood and every owner’s primary task is to help keep it flowing and to use the cash to generate profits. If a business is operating profitably, then it should, in theory, generate a cash surplus. If it does not generate a surplus, the business could eventually run out of cash and expire. The faster a business expands, the more cash it will need for working capital. Proper management of working capital will generate cash and will help improve profits and reduce risk.