The Working Capital Cycle Most Businesses Never Designed
Ask an operator how their business is funded and you'll usually get an answer about facilities — an overdraft, an equipment finance line, maybe an invoice facility. Ask how much working capital the business consumes per dollar of revenue growth, and the answer is far less certain.
That second number is the one that determines whether growth is sustainable.
The cycle you inherited
In a project-based business, the working capital cycle is set almost entirely by contract terms. On one side, your obligations to subcontractors and suppliers. On the other, your entitlement to be paid by clients.
Very few businesses set those terms deliberately.
Head contract terms are usually dictated by the client and accepted, because the alternative is not winning the work. Security of payment legislation sets outer limits on how long a payer can hold your money, but commercial terms sit inside those limits, and where they sit is a matter of negotiation that frequently doesn't happen.
Subcontractor terms tend to come from a template adopted years earlier. Supplier terms are whatever the supplier offered when the account was opened, often when the business was much smaller and had far less buying power.
The result is a funding structure that nobody chose, that has never been reviewed, and that sets a hard ceiling on how fast the business can grow.
Why growth exposes it
The cycle is invisible at steady state. Money goes out, money comes in, and provided volumes are stable the two roughly offset.
Growth breaks the offset. When revenue increases, costs are incurred earlier and at a higher rate than the corresponding income arrives. The gap widens in direct proportion to growth, and it widens fastest in the businesses winning the most work.
This is why a business can post its best year on paper and spend the whole of it under cash pressure. The margin is real. The timing is the problem.
It's also why the pressure often peaks two or three months after a strong win. The costs of mobilisation, procurement and early labour land well before the first substantial claim is certified.
What's actually negotiable
More than most operators assume.
Subcontractor terms. If you're paying at 14 days while being paid at 45, you are financing your subcontractors. Moving to 30 days is normal commercial practice and rarely costs you good subbies — particularly if payment at 30 days is reliable. Reliability is worth more to a subcontractor than speed.
Supplier terms. Accounts opened years ago at 14 or 21 days are frequently renegotiable at 45 or 60 on volume. Suppliers extend terms to secure spend. Most businesses never ask.
Claim timing. The date you submit relative to the client's assessment cycle can move cash by a full month with no change to terms at all. Submitting two days after the cut-off costs you thirty days.
Deposits and early milestones. Front-loading the claim schedule against genuine early costs — mobilisation, procurement, long-lead items — is legitimate and commonly accepted if raised at contract stage rather than afterwards.
Retention. Negotiable in percentage, in cap, and in release trigger. Frequently accepted as fixed when it isn't.
The number to calculate
There's one figure worth putting on a single page: working capital required per additional million dollars of revenue.
Work it out from your own cycle. Average days from cost incurred to cash received, applied to your cost base as a proportion of revenue. It gives you a funding requirement in dollars.
Once you have it, growth decisions change character. A $3m opportunity isn't just a margin question — it's a margin question and a funding question, and both need an answer before you bid.
Businesses that know this number bid differently. They negotiate terms before signing rather than managing consequences afterwards, they decline work that can't be funded, and they arrange facilities ahead of need rather than under pressure.
The cycle is going to determine your growth ceiling either way. Better to design it than inherit it.