What exactly is working capital?
Think of it as the money your business needs to keep the lights on between invoices. It's current assets minus current liabilities – basically, what you have available to cover day-to-day operations without scrambling.
How much should I keep on hand?
Depends on your industry and how fast money moves through your business. A retail shop needs different buffers than a construction firm waiting on milestone payments. Most businesses aim for enough to cover 30-90 days of expenses.
Why does my profitable business run out of cash?
Profit doesn't equal cash. You might have sold plenty, but if customers pay slowly or you've tied up money in inventory, your bank balance won't reflect those paper profits. Timing matters more than most people realize.
Can I improve things without external funding?
Often, yes. Getting paid faster, negotiating better supplier terms, or reducing excess stock can free up significant cash. Sometimes the solution is operational, not financial.
What's the difference between cash flow and working capital?
Cash flow tracks money moving in and out over time. Working capital is a snapshot of your financial position at one moment. Both matter, but they tell different stories about your business health.
When should I worry about my working capital?
If you're regularly juggling which bills to pay first, declining opportunities due to cash constraints, or maxing out credit facilities, it's time to look closer. Early awareness prevents bigger problems.
Common Working Capital Challenges
Steps to Better Control
Calculate your current position
Start by knowing where you actually stand. Add up current assets (cash, receivables, inventory) and subtract current liabilities (payables, short-term debt). The result tells you what's available for operations.
Track your cash conversion cycle
How long does it take to convert inventory into cash? From purchase to sale to collection – that's your cycle. Shortening any part of it improves working capital without changing your business model.
Review payment terms both ways
Look at what you're offering customers and what suppliers offer you. Sometimes small adjustments – like offering a discount for early payment or negotiating an extra week with suppliers – can make a meaningful difference.
Forecast realistically
Build a 13-week rolling forecast showing expected inflows and outflows. It doesn't need to be perfect, but it helps you spot potential shortfalls before they become urgent problems.
Callum Fitzwilliam
Financial Operations Analyst
Spent years helping regional businesses untangle their cash flow challenges across mining services, agriculture, and retail sectors.
Real-World Perspective
I've worked with plenty of businesses that looked healthy on paper but were constantly stressed about money. The pattern is usually the same – they focus on profit margins and revenue growth while working capital quietly becomes a problem.
What surprises people most is how small changes add up. A business might improve collection times by a week, negotiate slightly better supplier terms, and reduce inventory by 15%. Individually, none of these seem dramatic. Together, they can free up significant cash and reduce that constant underlying stress about covering the next payroll or supplier payment.
The businesses that handle working capital well aren't necessarily the most profitable or fastest-growing. They're the ones who pay attention to the operational details that affect cash timing. They know their numbers, plan ahead, and aren't afraid to adjust how they do things when patterns aren't working.
Need to discuss your situation?
Every business has different working capital needs. Let's look at what makes sense for yours.
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