How Much Working Capital Does Your Business Need?

Working capital is what your business owns short term minus what it owes short term. Here is how to calculate it, how to read it, and how to work out what you actually need.

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4 min read

Published On

Oct 26, 2026

Read: 6 minutes

Last updated: November 6, 2026

In this guide

What working capital is
How to calculate it
How to estimate what your business needs
What to do when you come up short

What Is Working Capital?

Working capital is what your business owns in the short term minus what it owes in the short term. It is a rough measure of whether your short-term resources can cover your short-term bills. It is not the same as cash: a business can have $60,000 of working capital and almost nothing in the bank.

Current assets are cash, money customers owe you, and stock. Current liabilities are what you owe suppliers, payroll and taxes due, and any debt payments due within a year.

How to Calculate Working Capital

Working capital = current assets − current liabilities

Take a business with $180,000 in current assets and $120,000 in current liabilities.

Working capital: $180,000 − $120,000 = $60,000
Current ratio: $180,000 ÷ $120,000 = 1.5

The current ratio tells you how many dollars of short-term assets stand behind each dollar of short-term debt. Below 1.0, you owe more in the short term than you have. Well above 2.0 can mean cash is sitting idle or stock is piling up. What counts as healthy varies a lot by industry, so compare yourself with businesses like yours and with your own past years.

Be careful with what sits inside current assets. Stock that is not selling and invoices that will not be paid count in the formula but will not cover payroll.

How to Estimate What Your Business Needs

The calculation above tells you what you have. To estimate what you need, look at how long your cash is tied up.

Step 1: Find your cash conversion cycle

Cash conversion cycle = days to sell stock + days to get paid − days you take to pay suppliers

If stock takes 30 days to sell, customers take 45 days to pay, and you pay suppliers in 30 days, the cycle is 45 days. Service businesses with no stock can drop the first number.

Step 2: Multiply by your daily costs

If running the business costs $1,000 a day, a 45-day cycle means about $45,000 is tied up at any moment. That is not extra money you need. It is what the cycle already holds.

Step 3: Size for your peak, then add a buffer

Take your busiest stretch, not your average month. If that runs 30% above normal, $58,500 is tied up. Add a buffer for repairs and late customers, such as two weeks of normal costs, or $14,000.

That gives a target of $72,500. The business above has $60,000, so it is about $12,500 short at its peak. That is your number: not a ratio, but the size of the gap and the time of year it appears.

The Slate View

Your cash cycle sets a speed limit on how fast you can grow, and an underwriter's eye goes straight to it.

Say you add $10,000 of monthly sales, with costs at 90% of sales and a 45-day cycle. That is $300 a day of new costs, so $13,500 is tied up before the new sales have paid for anything. The extra sales earn $1,000 a month. At that rate, it takes 13.5 months to fund the growth from its own profit.

This is why a business can have its best year and still struggle to make payroll. Grow faster than that, and the cash has to come from a shorter cycle, or from funding that must be repaid out of that same thin profit. That $13,500 also stays tied up for as long as the sales last. Knowing the number lets you choose your pace. Track it alongside your cash runway.

What to Do When You Come Up Short

Start by shortening the cycle, because that is free. Collect sooner, hold less stock, and agree longer terms with suppliers. Each day you take off a 45-day cycle frees up one day of costs.

If a gap remains, match the funding to the need. A one-off purchase and a recurring seasonal dip call for different products, and a credit line and a cash advance work differently.

With Slate Signals, you can ask Claude or ChatGPT how your business is doing and whether you need capital, when and how much, based on your own numbers.