Owner cash decision
How much working capital do I need?
Your operating working-capital requirement is the deepest cumulative cash deficit in a realistic forecast, plus a downside allowance and the minimum cash floor needed to keep the business running.
Working capital target = peak forecast cash deficit + downside allowance + minimum operating cash
Build the requirement from timing
| Input | What to model | Common omission |
|---|---|---|
| Cash out | Payroll, taxes, materials, subcontractors, overhead, debt, equipment, and owner distributions by week | Using monthly averages that hide payroll and material peaks |
| Cash in | Deposits and collections by likely receipt date | Using invoice date or revenue recognition date |
| Open work | Earned, billable, billed, retained, disputed, and collectible states | Treating all WIP and AR as equally available |
| Growth | New labor and purchasing before the related billing converts to cash | Assuming profitable growth funds itself |
| Seasonality | Slow demand, weather, annual renewals, tax dates, and insurance payments | Building from one average month |
| Downside | Late customer, delayed project, margin miss, callback, or sales slowdown | Calling the base case conservative without testing it |
Run three connected views
- Accounting working capital: current assets minus current liabilities. This shows balance-sheet liquidity, but not the timing of the next payroll.
- 13-week cash forecast: actual weekly receipts and payments. The lowest projected cash balance reveals the near-term funding gap.
- Growth and downside scenarios: model major jobs, hires, equipment, locations, slow collections, and seasonal troughs beyond the base forecast.
Do not turn the answer into one universal percentage
The same revenue can sit on very different cash cycles. A contractor may fund labor and materials for weeks before progress billing, then wait through approval, retainage, and collection. A recurring service company may bill in advance. Their working-capital needs should not be the same.
The U.S. Small Business Administration finance guide treats cash-flow projection, receivables, payables, available cash, and bank reconciliation as connected finance responsibilities. The SBA defines accounting working capital as current assets left after current debts are paid.
The owner action
Update the 13-week forecast every week. Record the deepest cash trough, add the cost of a plausible downside case, and protect a minimum operating floor. Compare that requirement with unrestricted cash and genuinely available credit. The difference is the capital gap to solve before committing to growth.
Questions owners ask
Is working capital the same as cash in the bank?
No. Accounting working capital is current assets minus current liabilities. The operating question is how much accessible cash and credit the business needs to survive its deepest timing gap while continuing to pay obligations.
Can I use a percentage of revenue?
A revenue percentage is only a rough comparison. Two businesses with the same revenue can need very different capital because payroll timing, material purchases, billing milestones, retainage, DSO, seasonality, and growth differ.
Should a line of credit count as working capital?
Available committed credit can fund part of the requirement, but test the borrowing base, covenants, renewal risk, interest, and debt-service capacity. Do not treat an uncommitted or nearly maxed line as cash.
How often should I recalculate the requirement?
Update the 13-week view weekly and rebuild the longer scenario before a major hire, project, location, equipment purchase, seasonal change, or growth commitment.
Grow without losing control of the numbers
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