How To Tell What Money You Can Spend For Yoyr Business

There is a great deal of cash flow going in and out of your company. With such a fluctuation, it can be a challenge to determine what you can use and what has already been appropriated for current invoices. Knowing how to calculate your working capital can help you figure out what cash you can utilize for upcoming expenses. Here are a few ways to tell what money you can spend for your business.

Find Out the Exact Amount That You Have

To determine exactly the total that you can use towards new projects or expansions to your facility, you must subtract your liabilities from your assets. The final result is what you have to use at the moment. While you typically calculate this once a year, it will vary constantly through that period of time. You should also keep in mind that if the number you owe is higher than what you can utilize as cash, then you are short of the working capital that you require to proceed with your plans. At that point, you will have to apply for a loan.

What You Would Consider Assets In Your Company

When you calculate your assets, you should consider the items that belong to your company that can be converted to money. While it will include the cash that you have in your bank accounts, it also encompasses the stocks and inventory that you can sell and the account receivables that you will collect from your clients. As you determine the worth of these items, be sure to subtract any depreciation that may have occurred over time. This can greatly affect your working capital and skew what you can spend on upcoming projects and expansions. You must have accurate numbers in order to represent your cash flow correctly.

What Are the Liabilities Within Your Organization

There are standard expenses involved in operating any type of business. This would include your basic bills, like the mortgage that you have on the building or the utilities that keep you up and running. The loans you have taken out to cover previous projects and the invoices for the materials that you have purchased would fall into this category as well. They are totaled together to determine your liabilities and then subtracted from your assets to discover your working capital. That number can fluctuate throughout the year so, before you make any definite plans, reevaluate it before you proceed.