Title: How Much Working Capital Does a Small Business Need?
Headings: How Much Working Capital Does a Small Business Need?
How Much Working Capital Does a Small Business Need?
It depends on business type, operating cycle, and management goals
Key Takeaways
What Is Working Capital?
Business Type
Operating Cycle
Management Goals

Content: Businesses that provide intangible products or services, such as consultants or online software providers, generally require much lower working capital. Businesses that have matured and are no longer looking to grow rapidly also have reduced need for working capital. Operating Cycle
Ideally, a business is able to pay its short-term debts with revenue from sales. However, the length of a company’s operating cycle can make this impossible. Companies that take a long time to create and sell a product need more working capital to ensure financial obligations incurred in the interim can be met. Similarly, companies that bill customers for goods or services already rendered rather than requiring payment up front need higher working capital in case collection on accounts receivable cannot be made in a timely manner . Management Goals
The specific goals of the business owners is another important factor that determines the amount of working capital required by a small business. If the small business is relatively new and looking to expand, a higher level of working capital is needed relative to that required by a small business intending to stay small. This is particularly true for businesses planning to expand product lines to venture into new markets, as the costs of research and development, design, and market research can be considerable.