D Guru & Associates

WORKING CAPITAL FOR STARTUPS

It’s every startup’s goal to become a successful and thriving business. To maintain your startup’s
financial health, it’s critical for you to thoroughly understand working capital.

• Working capital measures the difference between your current assets and liabilities.

• It is also a key determinant of several aspects of your business, such as long term growth
and funding invenentory.

Working capital = Current Assets – Current Liabilities

CURRENT ASSETS CURRENT LIABILITIES

( What a company owns) (What a company owes)
• Savings accounts • Account payable
• Account receivables • Dividends payable
• Mutual funds • Accrued income taxes
• Inventory • Rent
• Bonds • Salaries
• Stocks • Supplies

• The ideal amount of working capital needed is unique to each business. However, a healthy
company will have a sufficient amount of assets to pay off current liabilities.

• The current ratio is determined by dividing current assets /current liabilities. It is essential
to know your current ratio as it is sign of whether you will be able to pay off your short term
liabilities and debt.

• As a general rule, a higher ratio is better and indicates that you can readily fund daily
business operations.

Working capital needed = A/R Balance +Inventory Balance -A/P Balance

A/R -Account Recievables

A/P – Account Payables

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