Working capital management is a procedure that ensures the effective operation of the company with the best utilization of business current assets and liabilities. The main aim of managing your working capital is to monitor the assets and liabilities of the organization so that adequate cash flow can be maintained and the short-term goals of the business can be met. It assists in managing the planned and unplanned expenses and determines the efficiency of the business by maintaining liquidity.
Business needs enough cash flow to run its daily operations such as making payments, purchasing raw materials or managing unforeseen expenses, if any. Working capital is instrumental in fulfilling these requirements of the business and also serves as the report card for the company’s financial health.
Proper working capital management facilitates the business to operate smoothly and improves its earnings. It includes the proper management of inventory, account receivables and account payables so that enough cash is available for routine operations. It is an accounting strategy that not only helps businesses to meet their financial obligations but also enhances its earnings. It also helps in identifying the areas of the business that requires attention to maintain profitability and liquidity.
MSME stands for Micro, Small and Medium Enterprise. It was introduced by the Government of India in agreement with the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006. As per this act, MSMEs are the enterprises involved in the production, processing or preservation of goods and commodities. Vital for economic growth, this sector contributes around one-third of the country’s GDP and generates employment for around 110 million of the population.
It also plays an important role in the socio-economic development of the country as many of these enterprises operate in rural India. According to the Government's annual report of 2018-2019, more than 6 lakh MSMEs operate in the country.
Initially, MSMEs were classified based on two factors - investment in plant/machinery and an annual turnover of the enterprises. However, the Ministry of Micro, Small and Medium Enterprises has recently revised the classification by combining these two factors into a single criterion.
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