Knowing what working capital is and how to calculate it is essential for all entrepreneurs. This is because working capital is closely linked to the sustainability of the business.

The lack of working capital is often responsible for the failure of companies. If you don't want to run the risk of your company entering this statistic, keep reading and understand more about the subject.

What is working capital?

As its name suggests, working capital is the capital needed for cash flow to flow during a given period.

Capital turnover is calculated from the sum of all current assets of a company, such as inventories, cash and capital receivable from customers, subtracting liabilities, such as obligations with banks and suppliers, taxes and other expenses. It is recommended that, if the balance of this equation is positive, a part of it is allocated to the formation of working capital.

It is worth remembering that working capital needs to be built right at the beginning of business activities. First, the basic expenses to start production are added up, be it a product or a service, and plans are made for acquisitions or financing.

Therefore, when possible, it is necessary to start forming working capital through invested money, a personal reserve fund or even a bank loan. After all, the companies' profit in the first semester after opening is quite low to cover costs and contingencies.

Why is it important to manage working capital correctly?

Maintaining this financial amount is a factor that can be crucial for the survival of any enterprise, especially in the initial stages, when profitability is usually not high enough to compensate, alone, all fixed expenses and business charges.

In addition to ensuring the liquidity and agility of the enterprise, working capital can be used to cover unforeseen expenses, or even to expand activities.

What happens is that many entrepreneurs find it difficult to calculate this value, since, depending on the nature of the business, needs can vary constantly.

In the case of new ventures, this problem becomes even greater. According to data from the IGE (Institute of Geography and Statistics), 48.2% of companies close their doors after 3 years of activity. Managing working capital well is the way to stay out of these statistics.

How to calculate the ideal working capital for your company?

There is no simple and generalized formula to calculate this value. Some specialists talk about setting aside a monthly amount, distributing the load so that there is no imbalance in the accounts. However, many enterprises tend to operate with low profitability and even losses during certain periods, and high profitability in others.

Ideally, an analysis should be made of the past and future of the company and the competition. This type of investigation is essential to know how the market usually behaves, making planning much easier. If the first semester is a very profitable period, it is precisely from there that working capital will be extracted to compensate for the following semester.

For new micro and small enterprises, a conservative mentality must prevail, as these are the enterprises with the most difficulty in establishing themselves in the market.

For this reason, it is recommended to set aside working capital capable of covering approximately 70% of the company's expenses for the first 6 months, in addition to having 50% coverage for the other 6 months.

How to pay attention to maintaining liquidity for working capital?

A bad scenario for the company is when the sum of inventories and rights (capital receivables) is much higher than that of cash and banks, even when assets far outweigh liabilities. In this situation, the entrepreneur will face great difficulties in forming or even maintaining his working capital, especially if he has many short-term obligations with suppliers and banks.

Even if he has, for example, R$ 16,000.00 in inventories and only R$ 4,000.00 in debt, the manager may face difficulties in fulfilling his obligations if the cash value is R$ 1,500.00 and there is no forecast of sales that month to supplement the remainder.

Therefore, it is essential to avoid excesses when building stocks, thus guaranteeing the liquidity of the business. On certain occasions, this lack of control can even lead the company to use its working capital unnecessarily.

Increase working capital or invest?

On the other hand, if the company is regular, is up to date with its expenses and obligations and, when looking ahead, the projections for the coming months are extremely positive and there is already a working capital formed, it does not make much sense to form more reserve . The time has come to invest in expansion or, if you prefer, increase the distribution of profits among the partners.

It is difficult for a new company to carry out this type of maneuver for investments. Therefore, the strategy of maintaining a working capital remains recommended. This is a step to be taken for companies that have already reached their maturity and have been operating for at least 3 years.