Working capital, the difference between current assets and current liabilities, is one of the most practical indicators of whether a business can comfortably meet its short-term obligations.
Working capital is calculated by subtracting current liabilities, such as amounts owed to suppliers due within a year, from current assets, such as cash, stock, and money owed by customers.
A business with healthy positive working capital can comfortably pay suppliers and staff without relying on emergency borrowing, while a business with negative working capital risks struggling to meet obligations even while profitable on paper.
Slow customer payment, excessive stock holding, and overly generous supplier terms extended to customers are common causes of working capital strain among small Kenyan businesses.
Collecting customer payments faster, managing stock levels more carefully, and tracking these figures consistently through organized records, such as those maintained via paperlesskenya.co.ke, all contribute to a healthier working capital position over time.
Monitoring working capital regularly, not just profit, gives a far more complete and honest picture of a business's short-term financial health.
There is no universal figure, but many advisors suggest budgeting enough to cover several months of essential fixed costs, calculated from your own specific expense structure rather than a generic rule of thumb.
Monitoring working capital regularly, not just profit, gives a far more complete and honest read on short-term financial health.
Pull your most recent figures for current assets and current liabilities right now and calculate the difference, giving you an immediate, concrete sense of your current position.
Monitoring this figure regularly, not just profit, gives a far more complete and honest picture of short-term financial health.
Paperless
