Working capital

Working capital is the liquid cash a builder needs to cover outflows, trades, materials, payroll, during the gap before a stage payment lands. It is the buffer that keeps an otherwise-solvent builder out of a cash-flow death.

In building, money goes out before it comes in: you pay subbies, suppliers and wages as the work proceeds, but the client pays in stages, often weeks after you have funded the work. Working capital is the cash that bridges that gap on every active job at once. A common rule of thumb is to hold something like 5 to 10% of each active job’s value as working capital, scaled to how many jobs you are running and how lumpy the payments are.

It is related to, but not the same as, the current ratio: the current ratio is a measure (current assets divided by current liabilities) of whether you can meet short-term debts; working capital is the cash itself you draw on day to day. A business can look fine on the ratio and still hit a wall if the cash is tied up in unbilled work or slow debtors.

For a builder the practical points are:

• Hold a buffer per active job, do not run on the client’s next payment arriving exactly on time.
• Bill promptly and to the stage, late or under-claimed progress payments are the most common cause of a working-capital squeeze.
• Watch debtors and retentions, money you have earned but not collected is not working capital.

The reason this matters so much is that most building-company failures are insolvency through cash flow, not through a lack of work. Running too thin on working capital is how a busy, profitable-on-paper builder still goes under.

Also known as: Cash buffer, operating cash, net working capital.

Category: Business / Finance.

Related

• Cash-flow management for residential builders
• Current ratio

See also

• Insolvency

References

• Cash-flow management for residential builders (Chalkline) (verified 2026-06-03)

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Last updated: 2026-06-03. Verified: 2026-06-03. Quarterly review for currency.