Working capital is the money available to run your day-to-day operations: current assets minus current liabilities. This guide explains why it matters for cash flow.
Published July 2026 · Updated July 2026
Working capital is the cash and near-cash you have available to keep the business running. It is calculated as current assets (cash, stock, money owed by customers) minus current liabilities (bills, short-term debts, tax due soon).
Working capital is a health check on short-term solvency. Positive working capital means you can meet obligations falling due; negative or thin working capital signals a possible cash squeeze, even in a profitable business. Managing stock, invoicing and payment terms all affect it.
No. Profit is income minus costs over a period; working capital is a snapshot of short-term assets minus short-term liabilities. A profitable business can still be short of working capital.
Get invoices paid faster, manage stock levels, and negotiate supplier terms, the same levers that improve cash flow.
Source: Investopedia ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.