As a small business owner, you likely have several short- and long-term goals for your business. Whether you’re hoping to create new products, take advantage of new opportunities, expand your business, or simply keep your head above water during a downturn, you need consistent working capital. It not only helps keep things running smoothly on a regular basis but can also help fund future projects. To learn more about it, how it can help you act on new opportunities, and why it’s essential to any successful business, read on.

It’s Calculated by Liabilities and Assets

While the name might sound complicated, working capital simply refers to the amount of money that you have on hand at any given point in time. For instance, company savings or a business loan count towards your total. To calculate your current amount of available capital, simply add up your current assets and subtract your liabilities. Assets can include things like inventory or your accounts receivable, while liabilities should include your debts and accounts you’ll have to pay soon, like payroll or sales tax. To have positive capital, you’ll want more assets than current liabilities.

It Funds Current Operations and Future Growth

Having adequate capital is essential to your business both now and in the future. If you’re in an economic downturn or a slow sales season, for instance, enough cash on hand could help you weather the financial storm. On the other hand, if your business is currently doing well and you’re hoping to expand or start exciting new projects, capital is what helps you achieve those goals. Similarly, if you’ve already started a new project but won’t be paid until the work is sent to the client, you need adequate cash to support your company until completion.

It Can Come From Several Sources

While it might seem tough to come up with capital, there are actually several potential sources. For instance, you can always request deposits from clients up-front so you have some money to see you through to project completion. You could also apply for Small Business Administration loans, which lower the number of risk banks take on to help give you better offers.

Keeping adequate cash on hand at all times not only provides your company some security during tough times and keeps operations running on a daily basis, but can also allow you to take advantage of sudden opportunities and make your long-term projects and goals a reality. Now that you know about the importance of working capital, you can start improving your regular cash flow to maximize your company’s long-term chances of success.