Working capital

Working capital is roughly current assets minus current liabilities—the short-term fuel tank for running the business day to day.

Current assets include cash and accounts receivable. Current liabilities include credit cards, short-term loans, and bills you owe soon.

Positive working capital means you likely can cover near-term obligations. Thin or negative working capital means stress—even if long-term prospects look bright.

You can be “profitable this year” and still unable to pay yourself this month if working capital is trapped in unpaid invoices.

Every time you accept Net 30 without a deposit, you fund the client with your working capital. That may be fine in moderation—fatal in excess.

Understanding working capital helps you choose terms, deposits, and client mix deliberately.

Cash $8,000 + AR $12,000 = current assets $20,000. Credit card $3,000 + upcoming contractor bills $5,000 = current liabilities $8,000. Working capital ≈ $12,000.

If AR is mostly 90+ days overdue, that $12,000 is weaker than it looks. Quality of AR matters, not only the total.

Improving collections by $5,000 moves real fuel into cash—often more valuable than booking another slow-paying project immediately.

Collect receivables faster, manage payables thoughtfully, avoid tying up cash in unnecessary tools or inventory, and keep a small buffer.

Use deposits and progress invoices so large projects do not drain the tank. Pause work for severely overdue accounts.

Be careful with debt that temporarily inflates cash while increasing liabilities—useful sometimes, risky as a habit.

Estimate working capital roughly today: cash + trustworthy AR − near-term bills.

If the buffer is under one month of fixed costs, prioritize collections and deposits before optional spending.

Revisit the number monthly alongside your aging report.