Economy Events

Working Capital : What is It and How is It Determined?

Working Capital has been defined in several different ways. Some call it the lifeblood of a going concern. Others define it by describing it as the amount of seed money invested in a business for purposes of meeting the day-to-day needs of “a going concern.” Some others refer to Working Capital as the Net Worth of a business, using the formula:

Working Capital = Total Current Assets – Total Current Liabilities

Yet for those who have very little or no idea about Current Assets and Current Liabilities, Working Capital as a concept may be difficult to discern. .

Understanding the Concept of Working Capital Elements

A business is a “:going concern” if it is in constant operation to generate sales. As such, its Working Capital will keep the business running continuously. The value of which is determined by the Current Assets and Current Liabilities of an entity.

Current Assets

Available business funds used to support the selling activities and to purchases sellable goods are simply labeled as Cash. If the business is a trading concern, the sellable goods are called Merchandise Inventory. Inventory may have other descriptions, such as Raw Materials, Raw Materials in Process or Finished Goods, Inventory by any other name is a Current Asset since they will likely be sold and converted into Cash within a short period of time.

In some instances, goods are sold on credit; denoting that the sale will not immediately increase available Cash. in such cases, sales on credit be distinguished by being classified as Account Receivable. Ideally, Accounts Receivables are collected within a short period of time so that they will immediately become part of Current Assets. .

When a “going concern” is having a good run, more than enough cash may be amassed. If so, it is a good practice to place extra funds in short-term investment instruments such as stocks, or bonds. That way, even excess money can have a chance to grow while invested. Collectively, they are classified as Marketable Securities. They can easily be sold or converted into cash, they also form part of the Current Assets of the business.

Take note that for an asset other than Cash, to form part of the Working Capital of a business, it must be Current or one that can be easily liquidated in cash form.

Current Liabilities

Current Liabilities include trade credits that allow businesses to procure inventory and other business necessities on short-term bases. Credit purchases do not earn interest for as long as the obligations are settled according to the terms of credit, which can be as short as 10 days or 180 days at the most.

In cases when a business is unable to generate additional cash funds by way of sales, fund may be secured by way of short-term loans. Payment terms include interests, and amortized monthly up to 12 months. Inasmuch as there is a need to settle obligations periodically in less than a year, they are also classified as Current Liabilities.

Total Current Liabilities are then deducted from the Total Current Assets when determining how much Working Capital is being used by a business.

Risks of Getting a Business Loan

Nowadays, the number of people who are venturing in to businesses are getting larger for each passing day. They choose to retire from their work and start to build their business. The reality is that, like most things in life, being a business owner does not always work out exactly how you expect it to work. The popular belief among entrepreneurs is that successful business owners control their time, so they can go on a vacation anytime they want.

If you think that it just simple, then you are wrong. You will not be able to start a business without a money or capital. However, most people want to take a risk and will apply for a small business loans to fund their business. While there are a lot of loans being offered by banks and institutions, it is important to vertaile lainoja and look for legit borrowers. However, there are also downside from getting a cash loan, so it is very important you consider them before signing on the dotted line and taking the money.

Here are some risks of getting a lone to fund your business: 

1. There is not always equality when creating online loans

If you are interested to apply for a loan, then you probably researched it online and you will notice that there are some loans that have unique terms. Instead of regular interest charges, they demand fees that you must also pay which will reflect on the beginning of your term. Meaning, yo will not be able to save during the pre-paying loan. Others also have high interest rates. 

2. Having Too Much Debt– Do you think you will be okay upon borrowing money? do you think you need not worry about getting bankrupt. Successful businesses even go bankrupt at some point. Also sometimes, there are some who made a business decision to borrow money more than they could afford. Always have a look at the financials behind the loan to make sure you will repay it easily.

3. Deciding to Risk your Assets- entrepreneurs put their asset on the line once they decide to invest on something. If you borrow money for your business you may have to put up collateral like your car or your home.

One must think carefully prior to making such a huge decision. Just because there is money to borrow anywhere does not mean you should. Always evaluate your finances and your financial capability to pay off your debt.

Points-Taken Before Hiring a Tax Lawyer

When hiring a tax attorney or any specialty lawyer requires thorough consideration. There are numerous things to be taken into account. This is true especially if you are working for big and established companies or websites such as WOT.

Let me give you light on when and how you can find the right person for this job.

Purpose of Having a Tax Lawyer

The very first thing that you have to take into mind is the purpose why you need a tax attorney in the first place. Could be that you need assistance in a court case or you just need someone who can assist in performing accurate calculation of taxes and filing returns? This is extremely crucial for any business, right?

Oftentimes, people are randomly hiring the top lawyer their money can afford without having to ask themselves these questions. Yes it is true that lawyers have invested great amount of their time studying and practicing law. But please bear in mind that these professionals aren’t jack of all trades. There are lawyers who are suited best to handle out of court settlements while others excel in court.

Thus, prior to hiring a tax lawyer, think of it thoroughly and clarify the reason why you need their service.

Lawyer’s Qualifications

Of course, you wouldn’t dare to hire a lawyer who is not qualified to get the job done in the first place. After all, what’s the point of paying them top-dollar if they will fail eventually?

Thus, prior to taking the tax lawyer onboard, see to it that you have taken the time to read their qualifications. This way, you will be able to judge whether they are the right person for the job and for your company or not.

In most cases, achievements and experience weigh a lot than the qualifications that the lawyer has on paper. Think twice before making your decision.

How much the Lawyer is Charging?

Oftentimes, there’s no issue with regards to tax lawyers that assist in calculating taxes as well as income tax returns. It is because it is common understanding that they will be there to help you out twice a year.

https://www.youtube.com/watch?v=j2B-9AZh11E

But for tax lawyers whose job is to help you win cases like tax evasion and fraud, they might be charging a fixed price for the entirety of the case or per sitting. If the lawyer charges you per session, there is a big chance that you would not have the fund to pay for their service after couple of sessions. No one can just foresee how many times you have to be in the court for a single case.

So between the two, the former is basically a more practical option.

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Learne more about business and investment from this... Life of Starting a Startup - such an informative and fun to watch video. This explains the mechanics well, implementing is easier said than done. Applies to tech startups that have a ridiculously high market potential.
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