Do you have enough working capital to grow?
Working capital is what keeps the business running between the day you do the work and the day you get paid. Growth consumes it, so this shows what next year would ask of you.
Working capital is current assets minus current liabilities — cash, receivables and inventory, less everything due within 12 months. Apply your expected growth to see what the same cushion costs a year from now.
The math
How this works
What is working capital for a small business?
Working capital is the money tied up in day-to-day operations: cash in the bank, invoices customers have not paid yet, and inventory on the shelf, less the bills coming due in the next year. It is what you draw on to cover payroll and materials in the weeks between doing the work and being paid for it. Positive working capital means short-term obligations are covered by short-term assets. Negative working capital means you owe more inside the year than you can readily turn into cash. It is a different question from profit, because a profitable business can still run short.
How much working capital do you need to grow?
Growth raises the figures on both sides of the equation. More jobs mean more materials bought ahead of time, more invoices waiting to be paid, and more payroll going out before the money comes in. A rough way to size it is to grow your current assets and current liabilities by the same percentage as sales, then see what the gap becomes. Pick a target current ratio you can live with, apply it to next year's liabilities, and the difference from what you hold today is the amount you need to find. Most owners meet that gap with retained profit, a line of credit, faster collections, or a mix of the three.
How can you free up working capital without borrowing?
Collecting sooner is usually the biggest lever: invoice the day the work is done, make the due date and payment method plain, and follow up on anything past terms. Taking a deposit or progress payment on larger jobs moves cash to the front of the project instead of the end. On the other side, using the full payment terms your suppliers give you keeps money in your account a little longer. Carrying less slow-moving inventory releases cash that is sitting on a shelf. Each of these improves working capital without adding interest or a new payment.
Questions people ask
Is working capital the same as cash?
No. Cash is one piece of it, alongside unpaid invoices and inventory, with bills due this year subtracted. You can show healthy working capital and still be short of cash if too much of it is waiting on customers or sitting in stock.
What target current ratio should I use?
The field starts at 1.5, and 1.2 to 2.0 is a commonly cited healthy range. Businesses with steady, fast payments can run nearer the bottom of it, while seasonal or project-based work usually wants more cushion. Ranges differ by industry, so treat the number as a starting point and adjust it to how predictable your own collections are.
Why does growing sales use up cash?
You pay for materials, labor, and inventory before the customer pays you, so every additional job widens the gap between money out and money in. The faster sales climb, the longer that gap stays open. That is why a growing business can be profitable on paper and still struggle to make payroll.
What if my working capital comes out negative?
It means more is due within the year than you hold in cash, receivables, and inventory. Worth checking first is whether something is miscounted, such as a full loan balance entered as a current liability when only the next 12 months of payments belong there. If the figure is right, the usual places to work are collections, payment terms, inventory levels, and the structure of your short-term debt.
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This is an estimate to help you think, not financial, tax or legal advice. Finli is not a bank and does not lend. Your own numbers, and your banker, beat any calculator.