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Why is working capital management critical during rapid growth phases?
Asked on Nov 28, 2025
Answer
Effective working capital management is crucial during rapid growth phases because it ensures a business has sufficient liquidity to meet its short-term obligations while supporting expansion. Proper management of working capital components like inventory, receivables, and payables helps maintain operational efficiency and financial stability.
Example Concept: Working capital management involves optimizing the balance between a company's current assets and current liabilities to ensure it can meet its short-term liabilities and operate efficiently. During rapid growth, businesses often face increased demand for inventory and receivables, which can strain cash flow. Efficient management of these elements helps prevent liquidity issues, allowing the business to sustain growth without compromising financial health.
Additional Comment:
- Effective working capital management reduces the risk of cash shortages.
- It supports maintaining supplier relationships by ensuring timely payments.
- Optimizing inventory levels prevents overstocking and understocking.
- It helps in negotiating better terms with suppliers and customers.
- Monitoring receivables ensures timely collection and improved cash flow.
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