Working capital facilitates the smooth functioning of your business and gives you the right picture of your firm’s liquidity position so it is important to estimate your working capital requirement accurately.
While determining your working capital needs, consider the following factors:
1. Nature of the business
2. Scale of operations of the business
3. The time required to convert raw materials into finished goods
4. The amount of sales made on credit and the credit terms thereof
5. Seasonal differences in case of seasonal businesses
6. Financial buffer for contingencies; in case the business experiences a sudden need for cash
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