Working capital for a business is like gasoline for a car. Without gasoline, a car will not run, which is the same result for a business without working capital. Another description is working capital is the money which helps a business function. Kulkarni (2011) describes working capital as, “The resources which are required for the process of production” (para. 2).

Businesses will put polices in place to manage the working capital. Kulkarni (2011), “The working capital is calculated as the difference between the current assets and the current liabilities. A well accepted norm is that the current assets need to be more than the current liabilities” (para. 4). A few of these policies include maturity matching, aggressive, and conservative approaches.

The maturity-matching approach is when current assets match current liabilities. For example, let us say you borrow $200 dollars from your friend to buy a lawn mower, and you agree to repay in two weeks. You spend the $200 on the lawn mower to start the new business. This is a Medium risk approach because there is the possibility that the work you expect to be paid from doesn’t work out. This approach takes the loan and re-invests, to potentially make more money, instead of holding all money to pay back the loan. The $200 has the potential to make more money – but not guaranteed. In the matching approach, Kulkarni (2011) “Keeping low levels of working capital means that you can employ your funds more productively elsewhere” (para, 7). With the aggressive approach, current assets are low, every time there is a sale, the money is invested immediately back into the business. This model does not allow debtors to run a tab; it strives to have payments on time. Additionally, the company will pay its bills to the creditors towards the end of ht payment cycle allowing more use of the working