Working Capital Management for Startups: AR, AP, and Cash Conversion
Collated by Paul Jung, CFA
Curated by Rubric Financial
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What Working Capital Is + Why It Matters
- Working Capital = Current Assets (cash, AR, inventory) − Current Liabilities (AP, accrued expenses, short-term debt). Net positive = healthy; net negative = pressure.
- Investors and lenders look at working capital trends as a leading indicator: deteriorating working capital often precedes a cash crisis by 2-3 quarters.
- For SaaS companies: working capital is dominated by AR (customers who haven't paid yet) and deferred revenue (cash you've received but haven't earned yet). For physical-goods companies: inventory + AR + AP.
- Optimizing working capital can effectively extend runway by 3-9 months without any revenue or expense changes. Free money for operations.
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