It is important for businesses of all sizes to understand how to manage their working capital, as it plays a major role in the overall financial health and stability of the company. Working capital is defined as current assets minus current liabilities, and can be used to help determine if a business has enough resources available to cover its short-term debts. There are three main types of working capital: permanent, seasonal, and variable. In this blog post, we’ll discuss each type in detail so that you have a better understanding of which one best suits your business’s needs.
Permanent Working Capital
Permanent working capital is the amount of money that a business needs to remain operational over time. This type of capital refers to those funds which are always needed by the company, regardless of any changes in its operating environment. Examples include cash reserves, accounts receivable, inventory and other current assets that can be sold or used as collateral to pay off short-term liabilities.
Seasonal Working Capital
Seasonal working capital refers to the additional funds that a business needs in order to accommodate changes in its operating environment. For example, businesses that operate seasonally may require more cash flow during certain times of the year in order to cover their expenses during those periods. On the other hand, businesses that operate all year round may need additional working capital during certain times of the year to accommodate an increase in sales.
Variable Working Capital
Variable working capital is the amount of funds a business needs to meet its short-term obligations or take advantage of opportunities. This type of working capital is typically used for investments, new projects and other activities that can help the business grow. Businesses can access variable working capital by borrowing from a traditional lender or investing in stocks or bonds.
By understanding the different types of working capital available to them, businesses of all sizes will be able to better manage their finances and ensure long-term success. Contact Speed Funding today to learn about our working capital solutions for businesses.