Working Capital Management in Start-ups - An Exploratory Research on Swedish Start-ups

Abstract: Working Capital Management (WCM) is a management tool used in large companies to optimize the use of cash by minimizing the amount of cash tied up in working capital accounts, in order to reduce the risk of insolvency and to increase profitability. One of the main reasons why start-ups fail is related to liquidity issues. Despite a wide acceptance regarding the importance of WCM for start-ups, there is currently scarce research on WCM in start-ups. Hence, the aim of this study is to explore whether WCM is used in Swedish start-ups, if so, how it differs from WCM in large companies, and how entrepreneurs can use it to improve their cash flow. For this purpose, the theory of WCM describing processes in large companies is used as a framework, and a qualitative multiple case study research through seven semi-structured interviews is conducted. According to the empirical findings, three groups of start-ups were identified: proactive users, intuitional users, and non-users of WCM. The former two are characterized by previous corporate work experience, while the latter merely by single start-up experience. Further analysis revealed that the use of WCM is vital for all start-ups. Non-users were identified to be more likely to face cash flow issues. A key difference identified between the use of WCM in large companies and start-ups is that the former use it for cash optimization purposes, while it can be a matter of survival for the latter.