Working Capital Requirements in Professional Services
Working capital in professional services is measured simply as the # of months of payroll in the bank. Why? ~85 of a firm’s expenses is payroll.
However, financial disciplines regarding working capital vary greatly across the pro serv sectors.
Different business models.
For example, personal injury attorneys need lots of working capital because their fees are at risk. In contrast, management consulting firms need very little working capital because their fees are not at risk and often get paid in advance.
The question for you is how much working capital do you need? Too much and you starve growth. Too little and you take on too much risk.