Finance and valuation
Working capital
Working capital is the cash and near-cash a practice has available to pay its short-term bills, found by subtracting current liabilities from current assets.
The IRS Internal Revenue Manual defines working capital as current assets minus current liabilities and says it is the liquidity of a business that is used in its day-to-day operations. The SBA's glossary gives a similar meaning: the amount of current assets left after all current debts are paid. Current assets include cash and accounts receivable. Working capital shows whether a practice can cover payroll, rent and supplier bills while it waits for payments. A new or growing practice often needs more of it, which is one reason lenders ask about it in a practice loan. See cash flow.