Inventory glossary

What is Working capital?

Working capital is the cash a business has tied up in day-to-day operations, calculated as current assets minus current liabilities.

For a small Shopify store, inventory is usually the biggest chunk of working capital. Cash spent on stock sitting in a warehouse is cash that cannot cover rent, ads or payroll. The longer that stock sits unsold, the longer your money is locked up.

Tracking working capital helps you decide how much to reorder and when. If most of your cash is tied up in slow-moving SKUs, you have less room to buy the products that actually sell. Keeping an eye on this number before placing a big purchase order can stop you from overbuying and running short on cash.

Formula

Working capital = Current assets - Current liabilities

Example

A candle store has $18,000 in cash and inventory plus $4,000 owed by customers on account, giving current assets of $22,000. It owes suppliers $6,000 and has a small $2,000 short-term loan, giving current liabilities of $8,000. Working capital is $22,000 - $8,000 = $14,000.

Common mistakes

  • Treating all inventory as equally liquid, when dead stock cannot be turned into cash quickly.
  • Ignoring supplier payment terms, which affect how much cash is actually tied up at any time.
  • Ordering large quantities for a case pack discount without checking if it drains working capital needed elsewhere.

Working capital and SteadyShelf

SteadyShelf helps protect working capital by forecasting demand per variant so purchase order quantities match expected sales instead of tying up cash in excess stock.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

Carrying cost · Cash conversion cycle · Excess inventory · Open to buy · Inventory budget

Full inventory glossary

FAQ

Why does inventory affect working capital so much for a small store?

Because inventory is often the largest current asset a small store holds, and cash spent on stock stays locked up until that stock sells.

Can a store have healthy sales but poor working capital?

Yes. If most cash is tied up in unsold stock or unpaid customer invoices, there may not be enough free cash to cover bills even if sales look good on paper.

Let SteadyShelf do this math for every SKU

Order-by dates per supplier, seasonal forecasts and draft POs for your Shopify store. $29/month after a 30-day free trial.

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