Definition

Checking the difference between what the business owns and what it owes in the short term. A healthy balance means there’s enough money for daily expenses and small investments.

What to consider

  • Keep a buffer for unexpected expenses.
  • Balance short-term assets against liabilities.
  • Review working capital regularly.

Real world scenarios

  • A bakery reviews its daily cash and inventory to ensure there’s enough to purchase fresh ingredients each morning.
  • A tech startup in Silicon Valley monitors current assets to cover payroll and licensing fees.
  • A retail store adjusts its orders during slow seasons to maintain healthy working capital.

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