Keeping your business moving: a simple guide to working capital

Running a business is all about balance. You need enough cash on hand to pay bills, wages and suppliers while keeping things growing. That’s what working capital is about – the money you have day-to-day to keep your business moving. It’s easy to forget about it until there’s a shortfall. Here’s a simple guide to how working capital works, why it matters and how to keep it in good shape.

What is working capital?

Working capital is the cash or assets your business can quickly use to pay day-to-day costs. You work it out by taking your current debts away from your current assets. If you’ve got more assets than debts, you’ve got positive working capital – that means money to pay bills, buy stock and handle what’s ahead. If you’ve got less, it may cause stress and delays.

Why does working capital matter?

If your money is tied up in unpaid invoices or stock, you might not have enough cash to pay rent, wages or suppliers. Even a healthy business on paper can face trouble this way. When your working capital is steady, you have room to take on new work, pay bills on time and deal with surprises.

What affects working capital?

There are a few things. Seasonal sales, slow-paying customers or buying too much stock can all tie up cash. Fast sales and good payment habits can help keep money flowing. It comes down to watching how money moves in and out and not letting things build up unnoticed.

How can I improve my working capital?

Start with cash flow. Keep a close eye on unpaid invoices and chase them up quickly. Offer early payment terms if it helps. Be careful not to over-order stock. If possible, ask suppliers for longer payment terms and customers to pay quicker. Some businesses use loans or invoice finance to help smooth cash flow when needed.

What funding can support working capital?

There are options to suit different needs. Short-term loans can fill a cash gap. Invoice finance can turn unpaid invoices into cash. Overdrafts offer a buffer. Supplier credit lets you pay for goods later. It depends on how much you need and how soon you need it, so it’s worth a chat with someone who knows the options.

How do I know if my working capital is healthy?

The simple check is whether your current assets are more than your current debts. If yes, that’s a good sign. If not, or if you’re always close to running out of cash, it’s time to review things. Regular checks help you spot problems before they grow.

Can working capital help with growth?

Strong working capital makes it easier to take on new staff, buy more stock or take bigger jobs. Without it, you can get stuck. Growth needs cash upfront – the sales may come later, but the costs come first. That’s why working capital matters for steady growth.

How often should I review it?

Once a month is a good rule. Look at cash flow, unpaid invoices and stock. It keeps things in check and gives you more control.

Managing working capital isn’t complicated – it’s about keeping track and acting early. If you’d like to chat about how it works or funding options, contact Stef Radymski  or Nilima Begum at Evolve Business Finance.