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Working capital is the funds needed by a company to finance its daily operational activities, such as purchasing raw materials, paying employee salaries and other costs.
It is important to plan working capital well so that your business can run smoothly and grow.
The Importance of Working Capital
Working capital has an important role in the continuity of company operations. With sufficient working capital, the company will be able to continue operating and generating profits. Without adequate working capital, a company will have difficulty carrying out business activities.
Therefore, good working capital management is needed to survive and develop in the future. If working capital is insufficient, the company will experience difficulty in meeting its needs which could lead to bankruptcy.
The Importance of Working Capital for Business Success
"When you want to start or develop a business, one of the things you need to prepare is working capital. Careful planning is needed to get capital that can support the success of your business. Read the following discussion to find out how to get capital."
For business people, understanding and managing working capital well is a very crucial step in maintaining business continuity and growth.
Working capital is the funds needed by a company to finance its daily operational activities, such as purchasing raw materials, paying employee salaries and other costs.
It is important to plan working capital well so that your business can run smoothly and grow.
Types of Working Capital
Understanding the types of working capital is very important for every business. Here are the various types of working capital that you need to know:
1. Permanent working capital
Permanent working capital is the capital required by a company to carry out its operational activities in the long term. This permanent working capital consists of cash and cash equivalents, receivables, and inventory.
Companies must manage permanent working capital well so that there is no shortage or excess of capital. This is because a lack of capital can cause the company to be unable to fulfill its obligations, such as paying business debts or taxes.
Conversely, a company that has too much permanent working capital will lose the opportunity to make a profit because the money is not used for sales.
2. Variable working capital
The amount of this type of working capital changes according to changes in the company's operational activities. Variable working capital consists of inventory and receivables.
The amount of variable working capital required by a company varies depending on the type and scale of the business. You need to manage this capital well to be able to meet short-term obligations.
3. Regular working capital
This type of capital is generally obtained by companies from daily operational activities, such as from selling products or services. Regular capital will later be used to support the company's operational activities, such as purchasing raw materials, employee salaries and other costs.
Regular working capital can be obtained from product or service sales, bank loans, investment from company owners, and so on. It is important for you to ensure that this capital is sufficient to carry out business activities.
4. Reserve working capital
In running a business, sometimes financial problems arise that are difficult to predict. Therefore, companies need reserve working capital that is specifically kept to deal with emergency situations or unforeseen circumstances.
By having reserve funds, your company can minimize the risk of losses that may occur in the future.
5. Fluctuating working capital
Fluctuating working capital is a type of capital whose amount changes according to changes in the company's operational activities. These changes can be triggered by fluctuations in sales, production, raw material prices, or operational costs.
You need to choose the most appropriate way to manage fluctuating working capital according to the company's conditions and the situation at hand. That way, your company will be able to continue operating smoothly.