Explain the importance of working capital to a new business.

Mark scheme

Marking points from the official mark scheme (May/June 2021). The mark or mark type is shown in brackets.

1. [1] working capital is used to finance the day to day running of a business.
2. [1] A new business has to cover its current liabilities with its current assets if it is to remain viable.
3. [1] it can take some time for a new business to become known and to attract sufficient customers to generate profit. Working capital is essential to help the business survive these early days.
4. [1] a new business had to finance its start-up and then needs a flow of money e.g. to be able to pay for labour and inventory.
5. [1] if the premises are rented/mortgaged then regular payments will have to be made.
6. [1] resources are likely to be purchased and so money needs to be available to pay for this.
7. [1] suppliers are less likely to offer credit terms so all supplies will have to be paid cash on delivery.
8. [1] Accept any other valid response.