How Much Working Capital Does Your Business Need?

Your business may have orders coming in and customers who owe you money, yet still struggle to cover next week's payroll or supplier bill. That can happen because money you have earned is not always money you have received.

To work out how much cash you may need, start with when money will arrive and when your bills must be paid. A short forecast can show whether you have enough cash to get through the coming weeks and how large a gap you might need to cover.

The short answer: There is no single working-capital amount that suits every business. List your available cash, the customer payments you reasonably expect to receive, and the bills coming due each week. Find the lowest projected bank balance, then decide how much cash you want to keep available for unexpected costs. That gives you a starting point for estimating a cash gap. A lender will still decide whether financing is available and on what terms.

What does working capital mean?

In accounting, working capital is the difference between current assets and current liabilities. Current assets are things a business expects to turn into cash or use within roughly a year, such as cash, customer invoices waiting to be paid, and inventory. Current liabilities are bills and debts due within roughly a year.

The basic formula is:

Working capital = current assets − current liabilities

Imagine a distributor with $180,000 in current assets and $125,000 in current liabilities. Its accounting working capital is $55,000. That number gives a picture of its short-term financial position, but it does not say that $55,000 is sitting in the bank.

Some of those assets may be goods waiting to sell or invoices customers have not paid. The company might therefore have positive working capital and still face a shortage of cash on Friday. A cash-flow forecast helps answer that more immediate question: what will be in the bank when each payment is due? [1][2]

Start with the cash you have and the bills coming due

You can make a simple forecast in a spreadsheet or even on paper. Start with the money already available in your business bank account. Then, for each of the next several weeks, write down two things:

• Cash expected in: customer payments likely to arrive that week, cash sales and other confirmed incoming funds. A sale you made today is not cash in the bank if the customer has 60 days to pay.
• Cash expected out: payroll, rent, supplier payments, taxes, loan payments and other bills that must actually be paid that week.

Subtract the payments going out from the money coming in, then add the result to the previous week's balance. That gives you a projected closing balance for each week. If a customer has often paid late, use a realistic payment date rather than the date you hope to receive the money.

A longer view is helpful when customer payments are uneven. BDC recommends a rolling 13-week cash-flow forecast, updated every week. It lets owners see potential shortages earlier than a monthly total might show. [2][3]

Example: How a growing distributor finds a $54,000 cash gap

Consider a fictional Canadian distributor. It begins with $25,000 in the bank. It expects several customer payments over the next eight weeks, but it has to pay suppliers and employees before much of that money comes in.

This is an illustrative example, using Canadian dollars. It does not describe a real BGC client or lender offer.

Week	Cash received	Bills paid	Cash at end of week
Starting balance	—	—	$25,000
1	$12,000	$30,000	$7,000
2	$8,000	$36,000	−$21,000
3	$25,000	$29,000	−$25,000
4	$5,000	$34,000	−$54,000
5	$65,000	$38,000	−$27,000
6	$58,000	$32,000	−$1,000
7	$45,000	$34,000	$10,000
8	$42,000	$30,000	$22,000

The amounts shown are projected cash movements before adding new financing, its fees or repayments. A negative balance shows a cash shortfall, not permission to overdraw the bank account.

The business is short of cash from week 2 onward. Its largest shortfall is $54,000 in week 4, even though larger customer payments are expected later. That is the most important number in this forecast: without changing the timing of payments or bringing in more cash, the business will not have enough money to pay its scheduled bills.

If the owner also wants to keep $15,000 available as a cushion for unexpected costs, the calculation becomes:

$54,000 projected shortfall + $15,000 chosen cushion = $69,000 of liquidity to plan for.

Liquidity simply means cash, or funds the business can access when it needs to pay something. The $15,000 cushion is a choice made for this example, not a standard recommended percentage. The $69,000 is a planning estimate for this particular forecast, not necessarily the amount the business should borrow. The company may be able to collect invoices sooner, change purchases or negotiate appropriate payment dates, and any new financing would bring its own costs and repayments.

What if a customer pays later than expected?

The forecast is only as useful as its assumptions. If the distributor expects a $65,000 customer payment in week 5 but the customer pays in week 7 instead, the company may need more cash for longer. A delay could also change its ability to repay financing on time.

Try making two forecasts: one using payment dates you have good reason to expect, and another using later dates for the invoices most likely to be delayed. Include bills that cannot easily be moved, such as payroll and required tax remittances. If the second forecast shows a much deeper cash shortage, it is worth planning for that risk before taking on new payments.

For a seasonal business, the weeks before the busy period may look very different from the weeks when customers finally pay. A retailer building inventory, a contractor waiting for progress payments and a distributor filling a large order can all have different cash calendars even when their annual sales are similar.

Does positive working capital mean you do not need financing?

No. Accounting working capital can be positive because a business owns inventory or has money owed by customers. Neither is always available to pay a bill today.

The opposite also matters. A cash shortage does not automatically mean borrowing is the best answer. If the business loses money every week and there is no realistic plan for cash to recover, adding a loan payment may make the situation harder.

Look at both views together. Your financial statements show what the business owns and owes. The weekly cash forecast shows when it can actually pay. BDC also emphasizes planning for changes in inventory, customer-payment timing and sales growth when estimating working-capital needs. [1][4]

How much should you ask a lender for?

Start with the largest cash gap your forecast shows, then consider the cash cushion your business needs. Next, review what could reduce that amount before borrowing. For example, you might follow up on overdue invoices, agree on realistic supplier payment dates, delay a nonurgent purchase or use cash already available to the business.

If financing still appears necessary, ask how much is needed at each point in time. You may need access to $69,000 for a short period, or you may need a set amount to support an ongoing change in your business. Those are different situations. The amount available, the fees, how repayments work and whether you can borrow again will depend on the lender and the agreement.

A business line of credit may be worth comparing when gaps happen from time to time and the business expects cash to come back in. Working capital financing may also be considered when a business needs funds to support operations or growth. The right structure depends on the reason for borrowing, repayment capacity and the actual offer. Our guide to lines of credit versus term loans explains how those two arrangements differ.

Better Growth Capital accepts financing requests from CAD $30,000 to $5 million, but that is our general application range, not a lender's promise to fund the amount calculated in your forecast.

What should you prepare before applying?

A lender may want to understand how the company earns money, which bills it already pays and where the new money would go. Depending on the product and lender, you may be asked for recent bank statements, financial statements, a list of existing debts and information about customer payments.

Bring your cash forecast too. It can help explain why you need funds now, what is expected to change and how you expect to meet future payments. Our business financing eligibility guide explains other information lenders may review.

If you're ready to explore financing, apply through Better Growth Capital. Our team reviews requests and may refer suitable applications to selected funding partners. BGC is a Canadian financing broker, not a direct lender, and all financing remains subject to a lender's own review and terms.