Many times we confuse high turnover in business for business success/ prosperity. While this may be a pointer to doing something right, it is not in itself a strong index for strength of a business.

By far, working capital management goes a long way to determine how well your business will stay afloat. It basically addresses the liquidity of any business.

Working capital simply put, is a business' current assets minus its current liabilities. To further simplify this, it is what you have readily available to finance your business operations on a daily basis, or how often funding is required.

This comes down to the cash you have at your disposal (both in hand and in the bank). It is also all those current assets that can be easily converted to cash in the short term.

No matter how much sales/revenue/turnover you have captured in your books, no matter how much receivables you have giving volume to your current assets, no matter your inventory AND no matter your short term investments situation, If you lack the liquidity to meet your financial obligations in business as they fall due, the life of your business will come under intense pressure.

To avoid any such related crisis, working capital must be effectively managed. Working capital management ensures that you monitor your assets and liabilities, so that you aren't cash trapped at any time.

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