What is working capital?
Working capital is the difference between what your business owns in the short term (current assets) and what it owes in the short term (current liabilities). It measures whether you have enough liquid resources to cover your immediate obligations. A positive working capital means you can pay your bills. A negative one means you cannot, at least not without borrowing or selling something.
How to calculate it
Working capital = current assets minus current liabilities. Current assets include cash in the bank, money owed to you by customers (debtors), and stock. Current liabilities include money you owe to suppliers (creditors), tax due, and any loan repayments falling due within 12 months.
Why it matters
A profitable business can still fail if it runs out of working capital. This happens more often than most owners realise. You invoice a client for £10,000. That shows as revenue and profit on your P&L. But if the client takes 60 days to pay and your suppliers want paying in 30, you have a working capital gap that needs bridging. The business looks healthy on paper but cannot pay its bills today.
Tracking working capital monthly tells you whether the gap is widening or narrowing. If it is widening, you need to act: chase debtors faster, negotiate longer terms with suppliers, or arrange a short-term facility to bridge the gap.
How CFO Pal helps
CFO Pal tracks your working capital position automatically from your accounting data. It monitors debtor days and creditor days and alerts you when the gap starts widening. You see the trend before it becomes a problem, not after the direct debit bounces.
Stop guessing. Start knowing.
CFO Pal monitors your working capital, debtor days, and cashflow automatically. Get alerted before problems arrive.
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