We've all heard stories of companies running out of cash and having to close up shop. How is it that smart entrepreneurs with great business ideas become so unaware of the financial health of their business? It begs the question: “Can companies do a simple equation to see which direction their business is heading?” As important as it is to look at projected revenue, there is a better method for founders to understand the current financial health of their company. 

Working capital is a company’s available cash that covers business expenses at any given time. It’s a company’s assets minus their liabilities. Assets include cash, accounts receivables (money owed from customers), property, and equipment costs. Expenses include short-term dues such as advertising costs, operational costs like utilities, payroll, and paying or owing debt.
When your expenses exceed the funds available to you, you can leverage your working capital to bridge the cash flow gaps for a temporary amount of time. This allows your business to continue operating as usual while avoiding any potential issues with stagnation in revenue and business growth.

How to calculate working capital: