balanced working capital position in financial management

In simple terms, having a balanced working capital position in financial management means that a company has enough money to pay for its day-to-day expenses like salaries, rent, and bills without running out of cash. For example, imagine you have a piggy bank where you save up money for buying toys and snacks. If you spend all your money on toys and don’t save enough for snacks, you might run out of money and not be able to buy what you need. But if you save just the right amount for both toys and snacks, you have a balanced piggy bank. In the business world, having a balanced working capital position is important because it ensures that a company can continue to operate smoothly and grow. If a company doesn’t have enough working capital, it might have to borrow money or even go out of business. One verifiable fact is that according to a study by the Small Business Administration, about 50% of small businesses fail within their first five years due to poor financial management, including issues with working capital.