How do you calculate working capital?
What happens if your business doesn’t have enough working capital?

If your company doesn’t have enough working capital, it doesn’t have the cash it needs to pay its bills. You’ll either miss bill payments or have to turn to debt to cover your expenses.

How much working capital does your business need?

The amount of working capital a company needs varies based on its size, industry, and other factors. A good rule of thumb is that a company should aim to have a working capital ratio of 1.2 to 2.0, meaning its current assets should be 1.2 to 2 times more than its current liabilities. 

How long does it take to improve working capital?

How long it takes to boost working capital will depend on the strategies used. Raising prices can generate a quick, short-term increase in working capital, but you may lose customers and see working capital fall.

Growing working capital through investment in growing your company may take longer to pay off but be more lasting.

About the Author

TJ Porter

TJ Porter

Personal Finance Writer

I have in-depth experience in reviewing financial products such as savings accounts, credit cards, and brokerages, writing how-tos, and answering financial questions both simple and complicated.

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