Calculating Your Working Capital Needs

This post was originally published on On Deck

Having enough working capital is essential for many small businesses. Working capital ensures that you have enough cash on hand to fund day-to-day operations and keep your business running.

But knowing how much working capital your business needs can be complicated.

So how do small business owners calculate how much working capital they need? Let’s explore how you can calculate your working capital needs, why it matters and a few ways you can increase it.

How Much Working Capital Do I Need for My Small Business?

Small business owners generally strive for a working capital ratio between 1.5 and 2. This means you have enough working capital to cover your liabilities with some left over to make critical investments. At the very least, it’s prudent to ensure that your working capital is positive — that you have enough cash on hand to cover liabilities.

The exact amount of working capital your business needs, however, depends on the type of business you run, the size of your operations and many other factors. For example, if your business has to restock inventory often or needs a lot of raw materials, you may have higher working capital requirements than other businesses.

How Do

Read the rest of this post, which was originally published on On Deck.

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