You can be growing. You can be profitable. And you can still run out of cash.

A founder I worked with once said:

Another added:

This is the silent killer in many growing startups:

profit on paper, but panic in the bank account.

The reason? A broken understanding of working capital.

Let’s break it down—so you don’t confuse accounting success with operational survival.

Step 1: What Is Working Capital, Really?

In simple terms:

Working Capital = Current Assets – Current Liabilities

But in startup language:

Positive working capital = flexibility

Negative working capital = constant stress

Profit means little if you can't access the cash when you need it.

Step 2: Understand Where Your Cash Is Hiding

Here’s where working capital gets stuck:

• Accounts Receivable (AR): Clients owe you, but haven’t paid

• Inventory: You bought stock, but haven’t sold it yet

• Prepaid Expenses: You've paid in advance (rent, software), but haven’t “used” it fully

• Delayed Payables: You owe vendors, but you haven’t paid yet

The trap?

Your revenue is booked. Your expenses are logged.

But your cash is parked in limbo.

Knowing your P&L isn’t enough. You need to track your cash conversion cycle.

Step 3: Watch for the Growth-WC Trap

Sounds ironic, right?

But here's what happens:

• You land bigger deals → you spend more upfront (inventory, hiring, tools)

• The customer pays 60–90 days later

• Meanwhile, you’re out of cash—even though you’re profitable

High growth = high working capital needs

If you don’t plan for that, growth becomes your downfall.

Step 4: Improve Liquidity Without Touching Revenue

Ways to unlock cash stuck in operations:

• Negotiate better payment terms:

  • Get clients to pay faster

  • Pay vendors later (without hurting trust)

• Offer incentives for upfront payments:

  • 5% off for annual subscriptions

  • Prepaid pilots for B2B customers

• Tighten receivables tracking:

  • Follow up weekly on overdue payments

  • Automate invoicing and reminders

• Manage inventory lean:

  • Buy based on real demand, not assumptions

  • Track dead stock and sell it at breakeven if needed

Liquidity improves when you stop letting cash sit idle.

Step 5: Build a WC Buffer Into Your Fundraising Ask

When raising capital, founders often focus on:

• Team

• Tech

• Marketing

But forget:

• Working capital for operations

• Buffer for delayed collections

Smart founders raise:

It’s not just defensive. It’s operational confidence.

TL;DR – Too Long; Didn’t Read

• Working capital is your short-term cash engine—not your long-term profit story.

• Revenue and profit ≠ liquidity. Track where your cash is stuck.

• High growth increases working capital pressure—plan for it.

• Improve WC by negotiating terms, tightening receivables, and optimizing inventory.

• When fundraising, account for working capital needs—not just topline growth.

Profit looks good in reports.

But liquidity keeps the lights on.

If you don’t manage working capital early,

you’ll always feel broke—even when you’re winning.