Working Capital Calculator
Estimate the operating cash a business needs. Enter current assets and current liabilities to see working capital and the current ratio.
Working capital sits on top of the purchase price. Sanity-check the price itself before you make an offer.
Why buyers must budget for working capital
Working capital is current assets minus current liabilities — the cash, receivables and inventory a business needs to keep operating, less what it owes over the next twelve months. It is not part of the down payment, and in many deals it is not part of the purchase price either. Buyers who plan only for the price and closing costs frequently find themselves funding payroll and suppliers out of pocket in month one.
The current ratio (current assets ÷ current liabilities) puts the same figure in proportion. Between 1.5 and 3.0 is a comfortable range for most small businesses. Below 1.0 the business cannot cover its near-term obligations from near-term assets, and you should expect to inject cash at closing.
Nail down in the purchase agreement whether a normalized level of working capital is delivered with the business — this is one of the most common post-closing disputes. Our due diligence guide covers the records to request, and the SDE calculator helps confirm the earnings behind the balance sheet.
This tool gives an estimate for planning purposes only and is not financial, tax, accounting, or legal advice.
Frequently asked questions
Working capital is current assets minus current liabilities — the short-term cash, receivables and inventory a business needs to operate, less what it owes in the next twelve months. Buyers need enough of it on day one to make payroll, pay suppliers and fund inventory before customer cash arrives.
It depends on the deal. Many Canadian share sales include a normalized working capital target with a post-closing adjustment; many asset sales exclude cash and receivables entirely. Read the purchase agreement carefully — this is one of the most common sources of post-closing disputes.
For most small businesses, 1.5 to 3.0 is healthy. Below 1.0 means short-term obligations exceed short-term assets. Well above 3.0 can indicate idle cash, slow-moving inventory or receivables that aren't being collected.
Beyond the down payment and closing costs, plan for at least three months of operating expenses plus any working capital the deal doesn't deliver. Underestimating this is a leading reason otherwise sound acquisitions run into trouble in year one.
Review an aged accounts receivable and payable listing, recent bank statements, inventory counts with obsolescence write-downs, and the last twelve months of monthly balance sheets so you can see seasonality rather than a single point in time.