Working capital

Working capital is the money available to pay bills in the coming months. It is calculated by subtracting the business’s short-term liabilities (suppliers, debts due within the year) from its short-term liquid assets (cash in the bank, amounts owed by customers, inventory).

At a glance

The cash the business will have available soon, minus what it must pay soon (within the year)
Positive result: You’re able to meet your upcoming payments
Negative net income: risk of running out of money (“liquidity”) at the wrong time
Keep an eye on tax rebates (5% GST and 9.975% QST) and payroll deductions paid to the government (source deductions)
A simple ratio sums it up: current assets divided by current liabilities; if the ratio is above 1, your working capital is positive

Why it matters

A business can be profitable on paper yet still lack the cash to pay its bills: it’s like having a good salary but nothing in your account on rent day. With $80,000 in funds coming in soon and $50,000 due soon, your working capital is $30,000, a cushion. Keeping an eye on it prevents you from getting stuck when tax refunds come in all at once (GST and QST) and payroll deductions (source deductions). These expenses are real and predictable: on $10,000 in taxable sales, you collect $500 in GST (5%) and $997.50 in QST (9.975%), which you must remit to Revenu Québec, without confusing it with your personal funds. That’s why we keep a close eye on this buffer, along with the Customer and Vendor Accounts and the cash flow. Bankeo connects you for free with a vetted accountant or CPA who helps you keep this financial cushion healthy, and we’re here to support you every step of the way.

Frequently asked questions

What exactly is working capital?

It’s the difference between what your business will soon receive (cash in the bank, invoices that customers owe, inventory for sale) and what it must soon pay (suppliers, debts from the current year). This difference shows whether you’ll be able to meet your upcoming obligations.

What does negative working capital mean?

If your upcoming payments exceed the cash you’re about to receive, this is a sign that you may run out of cash. You need to act quickly, for example, by speeding up your collections or spreading out your payments.

How can you maintain a healthy working capital?

By closely tracking your cash inflows and outflows, especially around tax and payroll dates, Bankeo connects you, for free, with a vetted accountant or CPA who will set up this tracking system, and we’ll be there for you every step of the way.