Even disciplined forecasts can miss the mark if they fail to capture how cash actually moves through the business. For example, a financial plan might show strong ARR growth and healthy gross margins, but if enterprise clients pay on 60- to 90-day terms and key vendors require upfront payment, the business can face liquidity strain long before the model flags an issue.
At Attivo, we work with founders and finance teams to build working capital awareness into the core of their planning models. That means looking beyond the P&L—tracking vendor terms, customer payment cycles, prepaid contracts, and capital expenditures—to ensure the forecast reflects operational reality. In this post, we outline how to incorporate working capital into your model, what pressures to anticipate, and how to plan with greater precision.
Understanding Working Capital Through the Lens of Cash Timing
Working capital is often defined as the difference between current assets and current liabilities. But for early-stage companies, it’s more useful to think of it as the timing gap between when transactions hit the P&L—and when cash actually moves.
For example, consider a $1 million equipment purchase. While the P&L will reflect only $100,000 per year in depreciation, the full $1 million leaves the business immediately. That difference between how expenses are recognized and when cash is actually spent is a core component of working capital.
When early-stage companies overlook these timing dynamics, the result is often a misleading sense of financial health. The P&L based model may show profitability and 12 months of runway, while the business is weeks away from a cash shortfall.
Here are common examples of working capital impacts:
- Accounts receivable: B2B customers frequently pay on 30-, 60-, or 90-day terms—slowing down cash collection.
- Prepaid and suppliers: Annual software licenses, insurance premiums, and certain vendor arrangements may appear evenly on the P&L, but often require lump-sum cash payments upfront.
- Fixed asset purchases: Capital expenditures show up as depreciation, but require full cash payment immediately.
- Credit card cycles: Strategically using cards can extend your payable timeline and improve short-term liquidity.
- Delayed payables: Legal, consulting, and marketing vendors often bill after the fact, and payment terms may stretch weeks or months.
When modeled correctly, working capital assumptions allow the forecast to reflect the actual movement of cash—aligning financial plans with the operational reality of the business.
Building a Reliable Working Capital Forecast
Attivo helps teams model working capital dynamics through both Top-down and Bottoms-up assumptions—a dual approach that balances speed with precision.
Top-down modeling starts with directional estimates. For example, you might assume that 80% of non-payroll expenses are paid on a 30-day delay, or that customer collections average 60 days. These inputs allow you to pressure-test your cash runway: What if collections stretch to 90 days? What if a major vendor requires upfront payment?
Bottoms-up modeling adds specificity. We partner with clients to:
- Analyze vendor contracts for prepaid terms and renewal schedules
- Map credit card usage, billing cycles, and payment timing
- Build equipment purchasing schedules tied to delivery and deployment
- Identify customer invoicing practices and actual collection timelines
- Flag large annual contracts that may require lump-sum cash outlays
This level of granularity helps uncover true cash exposure—ensuring your forecast reflects operational reality.
Working Capital in Action: Navigating Long Cash Cycles
For example, imagine a company that sources components from overseas, assembles products domestically, and sells through B2B channels. The working capital cycle might unfold like this:
- Month 1: Pay international suppliers upfront
- Month 2: Receive goods after transit and customs
- Month 3: Complete assembly and quality checks
- Months 4–5: Deliver product and collect payment
That’s a 4–5 month cash cycle—meaning the business must fund nearly half a year of operations before revenue converts to cash. Without clear modeling, companies in this position often overestimate liquidity based on P&L metrics, not cash reality.
When supporting businesses like this, we help teams:
- Build inventory cash forecasts by SKU, supplier terms, and production timelines
- Assess the role of debt or credit facilities to bridge capital-intensive cycles
- Run scenario models to pinpoint when and where financing constraints may emerge
This level of visibility allows operators and investors to proactively make financing decisions rather than reacting to an unexpected cash shortfall.
Avoiding the Most Common Pitfalls
One of the most common missteps in working capital planning is relying too heavily on departmental budgets or the P&L to understand cash needs. Even when spend is well-managed on paper, large prepayments or delayed collections can quietly strain liquidity—like a $250K software renewal hitting all at once, or customer payments lagging just as expenses ramp.
To address this, we often build a dedicated working capital layer into our clients’ models—integrating P&L, balance sheet, and cash flow assumptions into a unified forecast. This allows teams to:
- Tag and track large prepaids, accruals, and vendor-specific timing assumptions
- Distinguish between when expenses are recognized and when cash moves
- Toggle scenarios for credit card usage, vendor term shifts, and debt facilities
- Stress test runway across delayed collections and concentrated vendor payments
We also work with clients to regularly re-evaluate payment terms—on both the receivables and payables side. In businesses with longer working capital cycles, this level of planning is what separates companies raising capital with confidence from those raising capital out of necessity.
Curious how working capital is shaping your runway? We help companies build models that reflect the real cash dynamics of how their business operates—so finance leaders and founders can make decisions with clarity and confidence.
