9/17/2007
What is Working Capital and How Is It Managed?
by Vonelle Vanzant, Center Director, UA Fort Smith SBDC
Have you ever wondered, is it possible to make money in your business and still go broke? The answer is a resounding "Yes." One of the often-repeated mantra’s in business is "Cash Is King." In other words, since all bills are paid with cash, when a business is out of cash and out of access to cash, it's out of business! End of story. Anyone who has been in business over just a few months knows what it is like to be making money, yet not have any cash to pay the bills.
In small business, we typically think managing working capital is keeping a positive balance in the checkbook and the bill box empty. Although managing working capital is not difficult, it is more involved than what is immediately apparent. To protect a business from closing its doors prematurely, management must learn to manage each component of working capital—accounts receivable, accounts payable and inventory. Good control over working capital requires active monitoring of each of these components using tools and benchmarks appropriate to your business and industry.
The ASBDC offers training and consulting in this critical area. Additionally, each ASBDC office has access to an excellent financial analysis tool known as ProfitCents. Visit us at asbdc.ualr.edu to locate the office nearest you or register for one of our seminars.
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