Sizing Your Working Capital Need, With a Worksheet

The working capital your business needs is the cash gap between the day you pay for work and the day you get paid for it, plus a cushion for a slow month. You size it from your own numbers rather than a rule of thumb: what leaves your account in a normal month, how many days pass between paying for the work and collecting on it, and how deep your slowest month runs. This guide walks through those three numbers, then hands you a worksheet with one fully worked example. With a few months of bank statements and an aging report in front of you, putting a figure on it takes about twenty minutes.

What working capital actually covers

Working capital is the money that keeps operations running between revenue cycles. It pays the team, the rent, the insurance, the fuel, and the inventory while you wait for sales and customer payments to catch up. It is not the money for a building, a fleet, or a decade-long bet, which are longer-horizon questions with their own answers. Our complete guide to working capital loans covers the product side. This page is about the number that should go in the amount field before you look at any product at all.

The reason the number is so easy to get wrong is that it has almost nothing to do with how much you sell. A business doing $2 million a year can have a smaller working capital need than one doing $600,000, because its customers pay in seven days instead of sixty. Sizing is a timing exercise.

The three numbers that size it

1. What leaves your account in a normal month

Start with outflows, not revenue. Pull three to six months of business bank statements and add up everything that goes out in an ordinary month: payroll and payroll taxes, rent, utilities, insurance, materials and inventory, fuel, subscriptions and software, professional fees, and any existing loan or equipment payments. Use a normal month, not your best one and not your worst one. If your months vary a lot, average three of them.

Divide that monthly figure by 30 and you have your daily burn, which is the unit everything else in the worksheet is measured in.

2. The days between paying and collecting

Two figures set this. The first is how long it takes to collect: count the days from the date you invoice to the date the money actually lands, not the terms printed on the invoice. Net 30 customers who reliably pay on day 45 are a 45-day collection cycle. Your aging report has this in it. If you are paid at the point of sale, this number is close to zero and your gap comes from stocking up ahead of demand rather than from waiting on customers.

The second is how long you get to hold your own money: the average days of credit your suppliers extend before you have to pay. Payroll counts as zero, because wages are paid the day they are due. The difference between the two is your cash gap in days, and it is the number of days of your own operating costs you are carrying at any one time.

3. The cushion for a slow month

The gap figure assumes a normal month. A cushion covers the month that is not normal, the seasonal trough, the big customer who pays late, the equipment failure. Size it from your own history rather than a guess: find your slowest month in the last year or two, take what you actually collected that month, and subtract it from that month's outflows. The shortfall is the cushion. If you have no slow month in the record, one week of daily burn is a reasonable starting point and easy to adjust later.

The worksheet

Copy the eight rows below onto paper or into a spreadsheet and fill in the middle column with your own figures. The right-hand column shows the same worksheet completed for Cedar Line Landscaping, a fictional commercial landscaping company used here as an example. Its figures are round so the arithmetic is easy to follow. They are not a benchmark and they are not typical of anything.

Read the example straight through. Cedar Line spends $60,000 in a normal month, which is $2,000 a day. Its commercial clients are invoiced on Net 30 and pay on about day 45, while its suppliers give it 15 days, so it funds 30 days of its own costs before the money comes back. Thirty days at $2,000 a day is $60,000 tied up at any given time. In February, its slowest month, it collected $45,000 against $60,000 of outflows, a $15,000 shortfall. Add the two and the working capital need is $75,000.

Notice what the 30-day gap means: Cedar Line is carrying a full month of its own costs on behalf of its customers, every month, whether or not it ever borrows a dollar. That money is already committed. The worksheet just tells you how much of it you are financing yourself.

Two honest caveats. Row D averages very different things, so if most of your outflows are payroll, your real supplier credit is closer to zero and your gap is wider than the average suggests. And the worksheet sizes a steady state. If you are about to take on a contract that doubles your payroll before it bills anything, run row A at the new spending level, not the old one.

How to read the number you just got

A result is either a seasonal gap or a structural one, and the two call for different responses. A seasonal gap opens and closes on a calendar you can point to: the landscaping winter, the retail lull after the holidays, the quarter when a big client's accounts payable department slows down. It has a payoff date on the other side, which is exactly the shape short-term financing is built for.

A structural gap does not close on its own. If row F keeps growing quarter after quarter while revenue is flat, the business is financing an ever-larger receivables book, and the fix starts with collection terms and pricing rather than with capital. Our guide on telling a cash flow problem from a business problem works through that distinction, and practical ways to improve cash flow covers the levers that shrink the gap before you fund it. Financing a timing gap is sound. Financing a business that spends more than it brings in buys time and makes the arithmetic worse.

Three ways owners get this number wrong

• Sizing to revenue instead of outflows. Percent-of-sales rules are the fastest way to a wrong answer, because sales say nothing about when cash arrives. Two businesses with identical revenue can have gaps that differ by a factor of five. Row A is what you spend, not what you bill.
• Forgetting payroll timing. Wages, payroll taxes, and employer burden come out on a fixed date with no terms attached, and for service businesses they are usually the largest line in row A. An average that quietly gives payroll 30 days of credit understates the gap badly. Count it as zero and the number gets honest.
• Borrowing the maximum instead of the gap. An approval for $200,000 is not a recommendation to take $200,000. Capital you do not put to work still carries its cost, so take the figure in row H, round it up for comfort, and leave the rest available for later. Sizing to the gap also keeps the payment schedule inside what the returning cash can cover.

Putting your number to work with Monera Capital

Once you have a figure, the question becomes which structure fits the shape of the gap. A working capital loan runs from $10,000 to $500,000 with terms of 3 to 18 months and fixed daily or weekly payments, which suits a one-time gap with a known size, like the $75,000 in the worksheet. Most businesses are approved within 4 to 8 hours, funds typically arrive within one to two business days, and qualifying starts at 12 months in business and at least $10,000 in revenue every month. A business line of credit runs from $10,000 to $250,000 on a revolving basis with interest charged only on what you draw, which fits a gap that opens and closes several times a year. If the gap is sitting in unpaid invoices from other businesses, invoice factoring advances up to 90% of the invoice value, typically within 24 to 48 hours, as a sale of receivables rather than new debt. Revenue-Based Financing repays as a percentage of daily revenue instead of a fixed payment, so the amount moves with your sales, which some owners prefer when the gap is real but the month-to-month revenue is not steady.

Not sure which one your number points to? Our funding fit finder asks a few questions and matches you to the products that fit the amount and the timing, or you can apply in a few minutes with the figure from row H in hand. The review starts with a soft credit pull that will not affect your score, and seeing what you qualify for carries no obligation.