Working capital and managing Cashflow

updated on 02 June 2023

Working capital is the amount of money that you need to keep trading a business essentially to be able to buy goods, sell them to generate more money, and move forwards with the cash flow.


You're looking at the difference between incurring creditors and then being able to meet any payments that come up. Every business needs them to survive and they keep the business running. Cash flow is the key thing to be able to manage especially in a situation like that generated by covid19. Normally, with working capital and cash flow, businesses tend to have a rhythm whether that be consistent throughout the year or whether that be seasonal.

COVID-19 has made it impossible to predict what will happen next. This meant that businesses are having to try and second guess on a daily, weekly, and monthly basis, what cash flow requirements they'll need, what working capital they'll need, and also what money they're likely to get into their company from sales.

Really, it's changed the game in terms of predictability, and any business needs to be able to try and change the way they're forecasting going forwards. Businesses should focus on predicting how their operations may change due to COVID-19, based on how it has already affected them and considering possible future lockdowns.

Local lockdowns will change business again and lots of businesses are shifting from a more physical environment to an online environment. Every business is trying to cope with the idea that the most important thing they can do is try and get some kind of forecasting in place. It's really important to produce management accounts, produce cash flow forecasts, and also not be afraid to produce sensitivities.

Whereby, you're making different assumptions about what might happen going forward. It's also key that you challenge those assumptions, you try and figure out what it is that might be different, and how you might adapt to those changes.

Discover the guidelines, tricks, and abilities needed to manage cash flow and working capital in any company effectively


As it relates to the management of current assets and current liabilities, effective cash flow management is an essential component of every business entity. These current asset groups must be turned into cash flows as soon as possible in order to maintain the firm's liquidity because current assets represent potential cash inflows. It has also been acknowledged that better-working capital management has a great potential to improve financial performance, both directly through immediate cash gains and lower net interest costs and indirectly through its effects on rising profitability and return on capital employed.

Key Takeaways: 

1. Working capital is the amount of money needed to keep a business running. 

2. Cash flow is the key to managing a business, especially during a crisis like Covid-19. 

3. Businesses need to be able to predict and forecast their cash flow and working capital needs. 

4. Businesses should produce management accounts, cash flow forecasts, and sensitivities to challenge assumptions.

Read more