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At Kerry Lehane & Co we know working capital is a term every business owner should understand. Put simply, it represents the difference between your current assets and your current liabilities. In other words, it shows how much money you have available to cover short-term obligations such as bills, wages, and supplier payments. Having enough working capital is essential for keeping your business running smoothly and ensuring you can respond to day-to-day financial demands.

Why Working Capital Matters
Positive working capital means your business has enough resources to cover its short-term debts and still invest in operations or growth. Negative working capital, on the other hand, can lead to missed payments, strained supplier relationships, and even insolvency if not addressed. Managing this balance effectively is key to financial health, as it reflects both liquidity and operational efficiency.

Factors That Influence Working Capital
Several elements affect your working capital position. Payment terms with customers and suppliers are one of the biggest influences. If customers take too long to pay invoices but suppliers expect payment quickly, cash flow can tighten. Inventory levels also play a role. Holding too much stock ties up cash, while holding too little may result in missed sales opportunities. Seasonal fluctuations in sales can also cause peaks and troughs in working capital needs.

How to Improve Working Capital
Improving working capital is often about finding the right balance. Tightening credit control can speed up payments from customers, while negotiating extended terms with suppliers can ease outflows. Streamlining inventory management helps ensure cash is not unnecessarily tied up in unsold goods. Monitoring expenses and reducing non-essential spending also strengthens your position.

Another option is to secure short-term finance such as an overdraft or revolving credit facility. While this should not replace good financial management, it can provide a safety net during periods of temporary pressure.

Making Working Capital Management a Habit
Effective working capital management is not just about avoiding short-term problems. It creates a stronger foundation for growth, giving you the flexibility to invest in opportunities when they arise. Regularly reviewing your working capital position allows you to anticipate challenges and make proactive adjustments.

By keeping a close eye on working capital, you ensure your business has the financial stability to operate smoothly, build stronger relationships with suppliers and customers, and maintain confidence in its long-term future.

If you would like to discuss your business needs. Call Kerry Lehane & Co Accountants on 023 8856054 or email info@kerrylehane.com

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