Profits are great. Investments are excellent. But working capital is what keeps your business afloat. By knowing how much you have, you can determine how much you can spend.

Working capital is the difference between current liabilities and current assets of your company. Current liabilities include any debts that are due within the year, to be paid to suppliers or creditors. Current assets include cash or any assets that you expect to convert to cash within the year. Such assets include receivables, inventory and short term investments.

Decreasing current liabilities can help you increase working capital. The simplest way to start is to make payments on time. This way, you only pay what you actually owe and any unnecessary expenses from accrued interest to your creditors can be avoided. If you have difficulties remembering the due dates, set up calendar reminders sufficiently in advance.

Also, keep track of payments, especially if you owe multiple types of loans to the same lender, so that you know exactly which debt was paid off. This way, both you and the lender can avoid confusion. You can also show the paperwork to a credit score provider if you notice that your business credit score report shows a related error.

In addition, maintain an open, honest relationship with your creditors. For instance, as soon as you notice that your cash flow cannot support the payments for your current liabilities, talk to them. This will send them the message that you mean to pay off the debt and that you will not hide the fact that you may be unable to. Lenders can be surprisingly accommodating if you ask for flexibility. If you have a good working relationship, they may give you the option to pay within 30 days of the due date.

Increasing current assets can also improve your working capital, though it generally takes more time compared to cutting costs. However, there is one point that you can check quickly: Are you including all the inventories that you have? While business owners tend to include finished goods, they might forget to take other types of inventory into account. For example, progress inventory refers to partially completed items and should be included in your assets list. Similarly, materials and components, which are parts required to make finished goods, should be included.

Monitoring your business finances is crucial in making a profit. Keep track of your current liabilities and current assets, ideally on a monthly basis, and make action plans accordingly. With this method, the financial health of your company will improve dramatically.