Working Capital

Working capital is the money available to pay the bills of the coming months. It is calculated by subtracting what the company owes in the short term (suppliers, debts due in the year) from what it has in short-term liquid assets (money in the bank, amounts owed by customers, inventory).

Brief

The amount of cash the company will soon have, minus what it will have to pay in the near future (within the year).
Positive result: you are able to meet your upcoming payments
Negative result: risk of running out of money (or "liquidity") at the wrong time
Something to keep an eye on regarding tax reductions (TPS 5% and VAT 9.975%) and payroll deductions paid to the government (DAS).

Why does this matter?

A business can be profitable on paper and yet lack the cash to pay its bills: it's like having a good salary but nothing in the account on rent day. With $80,000 in revenue coming in soon and $50,000 due soon, your working capital is $30,000: a cushion. Monitoring it prevents you from getting caught out when tax remittances (GST and VAT) and payroll deductions arrive simultaneously. Bankeo connects you with a certified accountant/CPA free of charge to help you maintain this cushion, and we'll be there to support you every step of the way.

Frequently asked questions

What exactly is working capital?

This is the difference between what your business will soon receive (money in the bank, invoices that customers owe, inventory to sell) and what it will soon have to pay (suppliers, debts for the year). This difference shows whether you will be able to meet your upcoming obligations.

What does negative working capital mean?

If your debts due soon exceed the money you will soon receive, it's a sign of a potential cash flow shortage; you need to react quickly, for example by accelerating your cash inflows or spreading out payments.

How to maintain a healthy working capital?

By closely monitoring your income and expenses, especially around tax and payroll deadlines, Bankeo will provide you with a free, audited accountant/CPA to set up this monitoring, and we'll remain by your side throughout the process.