Working capital and the cash tied up in operations

Start with the balance-sheet date

The IRS describes a balance sheet as a picture of assets, liabilities and equity at a given date. Choose a common cutoff for bank balances, customer invoices and supplier bills. Mixing a recent cash balance with an older payables report makes the review harder to interpret.

Sources: IRS Pub 583

Examine receivables, bills and available cash

SBA identifies receivables, payables, available cash, bank reconciliation and payroll as financial management responsibilities. As a practical review, separate collectible invoices from disputed amounts and identify bills approaching payment. Faster collections help only when the forecast also reflects the outflows waiting behind them.

Sources: SBA - Manage your business (Manage your finances)

Prepare for a lender’s forward-looking review

For Standard 7(a) lending, SBA calls for an assessment of working capital adequacy over at least the next 12 months. Its analysis also includes a pro-forma balance sheet reflecting the proposed borrowing, other debt, equity contributions and use of proceeds. Bring assumptions as well as historical reports.

Sources: SBA SOP 50 10 8.1 (effective October 1, 2026)

Choose operating changes that release cash

SBA describes financing for day-to-day operations and advance supplier orders. Before borrowing, consider practical changes such as resolving invoice disputes, billing completed work promptly and coordinating purchasing with expected demand. Compare alternatives using your own collection history; this guide does not prescribe a universal healthy ratio.

Sources: SBA - Loans

Sources: start with the balance-sheet date

• IRS Pub 583
• SBA - Manage your business (Manage your finances)
• SBA SOP 50 10 8.1 (effective October 1, 2026)
• SBA - Loans

Related records and decisions

• Building a cash flow forecast from expected receipts and payments
• Accounts payable vs. accounts receivable in daily bookkeeping