Question

Why is it ever so important now for organizations to manage their working capital prudently? Think of a company that is struggling to survive, like a local restaurant, what can it do to improve its working capital situation?

Answer 1

Working capital is the fund requirement for running day to day opeartions without which production and sales can come to a halt. Lack of Working capital may result in external borrowings which may increase the debt burden on the company.

In case of lets say a local restaurant, it can work on 2 areas.

Account payables: By getting good credit terms from suppliers of food and other materials, it can try to establish a good Working capital.

Inventory: By proper demand forecasting of consumer interests, followed by lower inventory levels, the working capital can be conserved.

Such measures will go a long way in establishing good working capital position.