Glossary
Working capital
Also called: net working capital
Working capital is current assets minus current liabilities — what you could convert to cash within a year against what falls due within a year.
Cash, receivables and inventory on one side; payables, accrued costs and the next twelve months of debt payments on the other. The difference is the cushion the business runs on, and it is the first thing a lender or surety looks at because it answers whether you can meet what is coming without new money.
Growth consumes it. Every new job is materials and labour out before money in, so a contractor growing quickly on a long collection cycle burns working capital precisely when the P&L looks best. That is the specific mechanism behind profitable businesses running short of cash, and it catches people who are doing everything else right.
Why it matters to a contractor
It is the difference between a busy quarter and a survivable one. Profit is an opinion about a period; working capital is whether Friday works.
Work it out on your numbers