Glossary
Working capital
The cash tied up in running the business day to day: stock on the shelf plus invoices owed to you, minus what you owe suppliers.
In plain English
Working capital is the money the business must keep invested in its own operating cycle: stock waiting to sell, work in progress, invoices your customers have not paid yet, less the credit your suppliers extend to you. It is cash the business owns but cannot spend, because trading would stop without it.
Growth eats working capital. Every extra month of sales means more stock and more debtors funded up front, which is why fast-growing profitable businesses run out of cash, and why buying a business without budgeting its working capital is buying a cash crisis at settlement.
Why a lender cares
Ignored working capital is one of the five most common reasons business loan applications get declined: the numbers show the business running dry within months and the assessor declines rather than watch it happen. Every sources and uses we build carries an honest working capital line, sized from the actual cash cycle.
Where this term takes you
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