Working capital

Working capital is the cushion of cash and near-cash a practice keeps available to cover its short-term obligations (payroll, rent, a lab bill) without having to wait on the next batch of insurance deposits or scramble for a loan draw. For an established practice, it is closely related to the operating-expense buffer behind the cash flow model: roughly one month of overhead kept on hand at all times, so a slow week never turns into a missed payroll.

Working capital matters even more sharply the moment a practice changes hands. A buyer who spends every available dollar on the purchase price and the down payment, with nothing left to cover the first few payrolls and lab bills while new-patient flow and collections stabilize, can find a perfectly sound acquisition turning into a cash crisis in the first ninety days, not because the deal was bad, but because there was no cushion to survive the normal bumps of a transition.

When financing a purchase or a buildout, working capital should be budgeted as its own line item alongside the purchase price and equipment, not assumed to appear on its own once the doors are open.