How healthy is your working capital?

We all know that cash is king when it comes to business success, but what exactly is ‘working capital’ and how does this financial metric help measure the health of your business?

Working capital is made up of the cash and assets that are available in the business to fund your operations and keep you trading. It is worked out by taking your current assets (the things you own) away from your current liabilities (the things you owe to other people).

If your working capital is strong, you have enough on hand to pay your team, your suppliers and the ATO on time and still have room to move. If it is weak, even a small bump in expenses or a delay in customer payments can cause stress.

In 2025, with increasing costs and tighter margins for many Australian businesses, keeping an eye on working capital is more important than ever. First Class Accounts Ovens and Murray helps by keeping your bookkeeping up to date, so you always have a clear picture of your numbers instead of guessing.

Why working capital matters

So, why is working capital such a critical metric?

Having the liquid capital needed to trade It’s possible for your business to be busy, successful and profitable, but for your cash position to still be in poor health and that can have a serious impact.

If you can’t readily convert your assets into liquid cash, it’s a struggle to meet your cashflow goals, pay your bills and fund your day to day operations. But with the optimum level of working capital, you strengthen your balance sheet and put the company in a solid financial position.

Healthy working capital gives you breathing space. You can pay people on time, take up good opportunities when they arise and sleep better knowing what is coming in and what is going out.

This is where cash flow confidence becomes practical. When First Class Accounts Ovens and Murray is managing your day to day bookkeeping and people payments, you can see your true position more clearly and make decisions based on real numbers, not gut feel.

How to achieve a healthy level of working capital

To achieve a healthy level of working capital you will need to:

Proactively manage your cashflow

Cashflow feeds your working capital by pumping liquid cash into the company and keeping the balance between assets and liabilities in a strong position. But to achieve this, it’s vital to achieve a positive cashflow position, where your cash inflows are greater than your cash outflows. This means getting paid on time, lowering your outgoings and keeping a close eye on your ongoing cash position.

In real terms, this might look like tightening up your debtor follow up, reviewing your payment terms, spreading larger bills over a realistic period and planning for regular commitments such as wages, super and GST so they do not come as a surprise.

First Class Accounts Ovens and Murray can help you put simple, practical systems in place to support this. That might include regular cashflow reports, payment scheduling, and clearer visibility of who you need to pay and when. The aim is to make your cashflow more predictable, which improves your working capital and reduces stress.

Monitor and forecast your financial position

Running regular financial reports helps you stay in control of your finances. With careful monitoring and forecasting of your cash position, you can ensure you don’t end up in a negative cashflow position, without the requisite working capital to trade and fund the next stage in your business plan. 

Cloud accounting software and business intelligence apps have made it easier than ever to create up to date, real time reports and run dashboards that show your key metrics.

In 2025, there is a wide range of connected apps that integrate with platforms such as Xero to give you clearer insights. These tools can help you track cashflow, see upcoming payroll, GST and PAYG obligations, and spot trends before they turn into problems.

First Class Accounts Ovens and Murray offers business app advisory to help you choose and set up the right tools for your business. We then use those tools to give you regular, easy to understand reports and forecasts, so you know how healthy your working capital is and what is coming up over the next few weeks and months.

Use additional finance when required

If working capital is looking thin on the ground, then additional funding may be needed to bolster your balance sheet. Short term finance options, such as overdraft extensions or invoice finance, and longer term business loans can be needed to keep working capital on an equilibrium.

Before taking on any extra finance, it is important to understand why your working capital is under pressure and whether it is a temporary issue or an ongoing pattern. That way you can choose the most suitable type of funding and avoid simply masking a deeper problem with more debt.

By keeping your books current and providing clear reports, First Class Accounts Ovens and Murray can help you and your accountant or finance provider see the full picture. This makes it easier to have informed conversations about what kind of funding, if any, is appropriate for your situation.

Support to keep your working capital healthy

Working closely with your accountant and bookkeeping team is vital if you want to promote the ideal level of working capital in the business. Together, they can help manage your cashflow, monitor your financial metrics and support you to access additional finance and funding when your capital needs a boost.

First Class Accounts Ovens and Murray focuses on reliable, done for you bookkeeping, cashflow confidence and real world advice. We become part of your team, keeping your numbers accurate and your reports clear, so you can make better decisions about working capital.

If you would like to understand how healthy your working capital really is, and what you can do to improve it, talk to First Class Accounts Ovens and Murray about reviewing your current position and setting up better support around your cashflow.

What is working capital in a business?

Working capital is the difference between your current assets and current liabilities. It shows whether you have enough available resources to pay your short term commitments.

How does working capital affect cashflow

Working capital affects how easily you can pay suppliers, wages and tax on time. Strong working capital supports smoother cashflow and reduces day to day financial pressure.

How can I improve my working capital

You can improve working capital by tightening debtor collection, managing expenses, planning for regular commitments, using helpful apps and keeping your bookkeeping up to date.

Do I need extra finance to fix working capital problems

Sometimes extra finance is useful, but it should be based on clear reports and an understanding of why your working capital is under pressure, not used to cover ongoing problems.

How can First Class Accounts Ovens and Murray help with working capital

First Class Accounts Ovens and Murray keeps your books accurate, helps you monitor cashflow and working capital, and provides real world advice so you can make better decisions.

How to Measure Business Performance

Running a business means juggling a lot of moving parts. You’re focused on customers, staff, suppliers, and the daily to-do list. But if you’re not keeping an eye on the right numbers, it’s hard to know whether all that effort is actually paying off.

Knowing which numbers really matter, your critical numbers, helps you see what’s working, what needs attention, and where to focus your time. They’re the indicators that show whether your business is healthy, sustainable, and heading in the right direction.

At First Class Accounts Ovens & Murray, we help business owners make sense of their numbers. Because when you understand what to measure, you can make decisions that improve performance, strengthen cash flow, and take the stress out of running your business.

Why knowing your numbers matters

It goes without saying that business success needs to be measured. But it’s equally important to know what to measure. The numbers that matter most, often called your critical numbers, act as the levers that directly influence performance and outcomes.

Focus on four or five key metrics that provide genuine insight into your business health. 

These vary depending on your industry and goals, but most businesses should know their minimum viable sales figure per day or week to maintain operations. 

Understanding your gross margin (the percentage of sales revenue that remains after deducting direct costs) is also essential. It helps ensure you’re covering overheads, meeting personal income needs, and sustaining profitability.

In 2025, many businesses are also tracking non-financial performance indicators alongside their financial data. For example, customer satisfaction scores, staff retention rates, and workflow efficiency can all help identify where improvements will make the biggest difference to your results.

Choosing the right critical numbers for your business

Some examples of tailored critical numbers include:

• Return on investment (ROI) by team member: understanding how each employee contributes to overall business outcomes.

• Average value of proposals or quotes won: helps you refine your pricing strategy and identify where higher-value opportunities exist.

• Number of new client enquiries, networking calls, or meetings: provides insight into how well your business development efforts are performing.

• Average debtor days (the time it takes customers to pay): a critical indicator of cash flow health. If payments are delayed, it can quickly impact your ability to pay suppliers, employees, or the ATO.

At First Class Accounts Ovens & Murray, we often help clients set up real-time debtor tracking and cash flow forecasting tools using Xero and add-on apps like Calxa or Dext, so they can see exactly where delays are happening and take action early.

How to measure your numbers accurately

Once you’ve identified your key numbers, the next step is to determine how you’ll measure them. 

Real-time, cloud-based data has become the standard for smart business management in 2025. With the right software, you can access accurate, up-to-date information anytime, no more waiting for end-of-month reports to know how your business is performing.

Setting up your reporting structure properly from the start makes all the difference. You may need to adjust your chart of accounts, change how income or expenses are coded, or introduce tracking categories to separate revenue by product, service type, or location. These small adjustments create visibility and clarity, allowing you to make better-informed decisions.

Tools like Xero, ApprovalMax, and Calxa can automate much of this process, providing dashboards and reports that highlight performance in real time. 

At First Class Accounts Ovens & Murray, we can help you select, set up, and manage the right systems to suit your business so you always know exactly where you stand.

Turning measurement into improvement

As management expert James Harrington said, “Measurement is the first step that leads to control and eventually to improvement.” When you track the right metrics, you gain control over your business, identify potential risks early, and set the foundation for long-term improvement.

Reliable bookkeeping and accurate reporting give you peace of mind that your business is running as it should. When you understand your numbers, you can move from reacting to problems to proactively managing growth.

Understanding your numbers

If you’re unsure what to measure or how to track it effectively, First Class Accounts Ovens & Murray can help. From setting up cloud-based bookkeeping systems to creating customised management reports, we’ll make sure your critical numbers are clear, accurate, and always available when you need them.

Get in touch today to discover how we can help you take control of your business performance and build lasting confidence in your numbers.

Common questions business owners ask about measuring performance

What are critical numbers in business?

Critical numbers are the key metrics that have the greatest impact on your business performance. They help track financial health, efficiency, and growth.

How often should I review my business metrics?

Ideally, review them weekly or monthly using real-time reports from your bookkeeping or accounting software.

What software can help me track my business performance?

Tools like Xero, Calxa, Dext, and ApprovalMax can automate reporting and provide real-time visibility of your key business numbers.

Can a bookkeeper help me identify my critical numbers?

Yes. At First Class Accounts Ovens & Murray, we help you pinpoint, measure, and understand the numbers that matter most so you can make confident business decisions.

6 secrets to getting prompt payment

Late payments continue to be one of the biggest challenges for small businesses. 

In 2025, reports show businesses are still experiencing delays that impact cash flow and create unnecessary stress. If this sounds familiar, the good news is there are simple, practical steps you can take to improve how quickly you get paid.

At First Class Accounts Ovens & Murray, we know that healthy cash flow is the backbone of a successful business. Here are six secrets you can put into action right now to help get paid faster.

1. Invoice without delay

Your customer can’t pay until they receive your invoice, so don’t put it off. Send invoices as soon as work is complete or goods are delivered. Customers are most open to paying while the job is fresh in their mind, and it shows you’re organised and professional.

In 2025, many accounting systems, such as Xero, allow you to set up automated invoicing. That means invoices are created and sent without delay, removing the risk of human error or forgetfulness.

Pro tip: Automating your invoicing through the right software not only saves time but also improves cash flow consistency. Talk to us about which option best suits your business.

2. Include all the information

An invoice missing key details is one of the most common reasons payments are delayed. Always include:

• a clear description of the work or product

• the date it was delivered

• the agreed price and tax details

• purchase order numbers (if required)

• your payment terms and methods

• the due date, clearly displayed

Some clients, especially larger organisations, have very strict invoicing requirements. If your invoice doesn’t meet them, payment can be held up for weeks. By checking in advance what information they need, you reduce unnecessary delays.

Pro tip: Using bookkeeping software can help you create invoice templates that meet your customers’ requirements every time. First Class Accounts Ovens & Murray can set these up for you so you’re confident every invoice is correct.

3. Ask for prompt payment

Long payment terms are no longer the norm. Many businesses now set 7–14 day payment terms, and some industries even expect payment within 48 hours. By clearly setting your terms up front, you set the standard for how quickly clients should pay.

In 2025, with faster payment technology available, there’s little reason to offer 30-day terms unless your industry requires it. Shorter terms not only speed up cash flow but also reduce the need for chasing overdue invoices.

Pro tip: Review your payment terms today. Even shifting from 30 days to 14 days can make a big difference to your cash flow over the year.

4. Be easy to pay

Customers pay faster when the process is simple. The more payment options you offer, the easier it is for them to clear your invoice quickly. In 2025, this includes:

• credit card payments

• direct debit or bank transfer

• PayPal, Stripe, or similar payment gateways

• instant pay links embedded in invoices

When your invoice lands in their inbox with a clickable “Pay Now” button, there’s no excuse for delay.

Pro tip: Many modern accounting platforms integrate payment options directly into invoices. First Class Accounts Ovens & Murray can help set this up so your clients can pay you with one click.

5. Chase payments

Sending an invoice is just the first step. Following up is essential. Most businesses don’t mean to pay late, invoices often simply get lost or forgotten in busy workflows.

In 2025, automated reminders can help reduce the awkwardness of chasing payments. You can set polite reminder emails to go out before the due date, on the due date, and if payment is overdue. If the invoice still isn’t paid, a personal phone call is often the fastest way to resolve it.

Pro tip: First Class Accounts Ovens & Murray can set up reminder systems tailored to your clients and industry so chasing payments becomes part of your process, not an afterthought.

6. Talk to us about your invoicing system

Managing invoices and cash flow doesn’t need to be stressful or time-consuming. At First Class Accounts Ovens & Murray, we specialise in helping businesses streamline their bookkeeping processes, set up automated invoicing systems, and stay on top of payments.

If late payments are keeping you up at night, let’s fix it. 

Contact First Class Accounts Ovens & Murray today and find out how we can help you get paid faster and keep your cash flow healthy.

FAQs about getting paid faster

Q: What is the fastest way to get paid by clients?
The fastest way to get paid is to send invoices immediately, make it easy for clients to pay with multiple payment options, and set shorter payment terms such as 7–14 days.

Q: How can I reduce late payments in my business?
You can reduce late payments by automating invoicing, including all required details on invoices, sending payment reminders, and following up quickly when invoices become overdue.

Q: What payment terms should small businesses use in 2025?
Many small businesses are now using 7–14 day payment terms instead of the traditional 30 days. Shorter terms encourage prompt payment and improve cash flow.

Q: How do bookkeeping systems help with getting paid faster?
Modern bookkeeping systems like Xero, MYOB, or QuickBooks can automate invoicing, add “Pay Now” buttons to invoices, and send automatic payment reminders, making it easier for clients to pay on time.

Yes. First Class Accounts Ovens & Murray can help you set up automated invoicing and reminders tailored to your business so you get paid faster and improve your cash flow.

Reduce your debtor days and improve cashflow

Managing the gap between the receiving money into your business and paying money out of your business is vital for sustaining viability.

So, how do you reduce your debtor days and improve your cashflow? Let's start with understanding debtor days. 

Debtor days is the average number of days taken for a business to receive payment for goods or services. Keeping track of the average number of days for a business to receive payment is important in understanding the cashflow gap you might experience and the impact on cashflow planning and budgets.

How to calculate debtor days

(Year-end receivables amount ÷ annual sales) x 365 days = average debtor days.

Here's an example: An IT consultant has in her terms and conditions that payment is due 21 days after invoice date. But she is interested to know what the actual average payment time is.

Trade debtors at 30 June 2019 = $35,000

Annual sales for 2019 = $478,000

(35,000 ÷ 478,000) x 365 = 26.7 days

With this information, she can either alter her cashflow planning according to the actual time-frame or take steps to reduce the average number of debtor days.

Here are ten things you can do to reduce the payment times?

1. Update your payment terms

Make sure the terms are clear on every invoice issued. Don’t forget to include bank details on the invoice!

First Class Accounts Ovens & Murray can assist in reviewing your payment terms and help integrate them into your invoicing software, ensuring consistent communication.

2. Regular admin

Schedule a regular time for your own administration and get your invoices out promptly.

3. Send to the right person

When you send invoices, make sure you address the email personally to your contact. Send the invoice to multiple addresses if possible, for example, your contact and the accounts department.

We can assist in setting up automated systems to manage your contact database, minimising errors in invoice distribution.

4. Use technology to your advantage

Use automated invoice reminders to notify customers when an invoice is about to be due and then when it is overdue. Do not wait to send notifications manually, let the software do it as soon as the invoice is a day overdue.

We can help implement the latest accounting software that includes automated reminder features, keeping your invoicing on track.

5. Make it easy for your customers

List the payment terms, for example, due in 14 days, as well as the actual due date.

6. Provide incentives for early payment 

For example, a 5% discount if paid within five days.

7. Offer several payment methods for clients

Adding options like credit card payments or online gateways such as PayPal makes it easier for clients to pay promptly.

We can advise on and set up various payment methods, ensuring integration with your existing systems.

8. Offer instalment payment plans over a mutually agreed period. 

This allows you to plan for part payments, rather than being inconvenienced by the whole invoice being paid late.

9. Do not offer unlimited credit to customers

Make sure your terms and conditions include the right to refuse further supply if invoices are outstanding. Request part or full payment before supplying more goods or services.

10. Talk to your suppliers

Maintain good relationships and clear communications so they are more likely to help you if you need an extension on your bills. If possible, renegotiate supplier terms that suit your business cashflow.

Take Advantage of Low-Activity Phases

During periods of lower business activity, take the time to:

• Update Terms and Conditions: Make sure they reflect your current business needs.
• Implement Alternative Payment Options: The more ways customers can pay, the fewer barriers there are to timely payment.
• Refine Business Systems: Use this time to review processes and find ways to improve them.
• Revamp Your Website: Ensure payment information and terms are clearly displayed.

First Class Accounts Ovens & Murray can support you in enhancing your business systems with app integration. We offer tailored advice on selecting and implementing the right apps for payment processing, invoicing, and cashflow management. Our services include ensuring seamless integration with existing systems to improve efficiency. We can also conduct cashflow analysis using app-based tools to compare your debtor days with industry standards, pinpointing areas where technology can help reduce payment times and optimise cashflow.

Talk to us about adding payment options, updating your software and improving business systems to assist in reducing the number of debtor days to improve your cashflow.

We can also look at average debtor days of your business compared to industry averages and discuss ways of managing cashflow during difficult periods.

How to use forecasts and scenario-planning

For centuries, accounting was all about reviewing historic information – but that only told you about the past, not what was going to happen in the future.

If you’re only looking back at past periods and historic numbers, that limits the insights you can achieve into your business. With a backward-looking ideology, it becomes difficult to plan, run through different scenarios or understand the path of the business.

Forecasting changes this. With the right data analysis and forecasting tools, you can project sales, cash, revenue and profits into the future – and get in control of your business.

At First Class Accounts Ovens & Murray, we understand that your business is dynamic, constantly evolving, and influenced by countless factors. We specialise in implementing forecasting apps, such as Futrli, that allow you to see beyond the numbers and into the future of your business. 

Our bookkeeping and app implementation expertise helps ensure that you’re using up-to-date, accurate data when forecasting, giving you confidence in the decisions you make.

A forward-looking view of your business journey

Forecasting switches the focus of your financial management. By moving to a forward-looking view of your business journey, you can see further down the road – and that helps to spot the opportunities and avoid the common business pitfalls.

By collaborating closely with you, our team at First Class Accounts Ovens and Murray can implement Futurli, or alternative forecasting apps to help you analyse trends, identify patterns, and anticipate challenges ahead of time. Our goal is to provide you with a clearer picture of what’s coming, so you can focus on making strategic decisions to grow your business. Whether it's sales, cash flow, or profit forecasting, our team is here to help you take charge of the future.

Forecasting adds value by:

Highlighting the data patterns

A forecasting tool takes your historic data and projects it forward in time. This helps you and your advisers to spot the patterns, trends, gaps and opportunities, revealing the true ‘story’ behind your business accounts. For example, forecasting may reveal a predicted seasonal slump in the next quarter, allowing you to plan ahead and proactively take action to minimise any negative impact.

Giving you a future view of your business

Instinctively, business owners will look back at prior periods to assess performance. There’s value to reviewing your historic actuals, of course, but using forecasting helps you to look forward, rather than just backwards. Forecasting is the satnav, showing you the road ahead, rather than the rear-view mirror showing you the road you’ve already travelled.

At First Class Accounts Ovens and Murray we make it easy to access this future view by integrating apps that generate future financial projections with just a few clicks.  This gives you a clear understanding of what’s next for your business, enabling you to allocate resources more effectively, plan for growth, and avoid potential pitfalls. 

Helping you scenario-plan

With a financial model of your key drivers, combined with accurate forecasting, you can quick answer your burning ‘What if…?’ questions.

Forecasting lets you run different scenarios, with different drivers, to see how business decisions may pan out over time. If option B performs better than option A, that’s invaluable information when defining your next strategic move.

Making informed, evidence-based decisions

Having ‘the full picture’ of combined historic numbers, forecasts and longer-term projections aides your business decision-making. Forecasting gives you solid evidence on which to base your strategy, and helps to red flag any threats that are looming on the horizon – giving you the best possible information to keep your executive team informed and on the ball.

We believe in making decisions based on evidence, not guesswork. That’s why implementing the appropriate apps can provide you with the data you need to inform your strategies. We ensure that your forecasts are based on accurate, up-to-date financial information, helping you make better decisions. Whether it's managing cash flow or planning for future growth, we give you the tools to act with confidence.

A deeper relationship with your accountant

Forecasting also helps us to get a far more granular view of your business. This helps to spot potential areas of performance improvement, and to give you the best possible strategic advice, all backed up by solid, empirical data and management information.

Take Control of Your Future with Forecasting

If you want to get in control of the destiny of your company, come and talk to us. Forecasting helps you highlight your future threats and opportunities – and create a proactive strategy to improve the performance of your business.

At First Class Accounts Ovens & Murray, we not only manage your bookkeeping but also help you implement powerful forecasting tools like Futrli. By connecting this app with your Xero platform, we can give you clear insights into what lies ahead. 

Our goal is to help you plan for the future, whether that involves managing cash flow, preparing for growth, or navigating uncertain markets. Whether you’re looking to grow your business, manage cash flow more effectively, or simply get a better sense of what’s coming, we provide the tools and insights you need to succeed.

Talk to us today to learn more about how forecasting can benefit your business and set you on the path to future success.

Review your expenses - and save yourself money

Running a business will always mean incurring certain expenses or 'spend'.

Whether you’re a large family business or a small fledgling startup, there will be costs, overheads and supplier bills that mount up – and these expenses will gradually chip away at your cash position, making it more difficult to grow and make a profit.

So, what can you do to reduce your spend levels? And what impact will this have on your overall margins, profits and ability to fund the next stage in your business journey?

Getting proactive with your spend management

Spend management is all about getting in control of your expenses – and, where possible, aiming to reduce the level of costs and overheads that you incur as a company.

Why does this matter? 

Well, excessive spending eats into your cash flow, reduces your profit margins and stops you from achieving the profits that you’re capable of as a business.

So if you can get proactive with your spend management, you can actually make your company a far more financially productive enterprise – and that’s great for your overall business health.

So, what can you do to reduce spend and slim down your company expenses?

Here are some key ways to reduce expenses:

Reduce your overheads

Your overheads are the unavoidable costs of running your business, producing your products or supplying your services.

If you have bricks and mortar premises, these overheads will include rental payments, utility bills and even the cost of paying your staff.

Drill down into the numbers and see where there are opportunities to reduce these overhead costs. That could mean moving to smaller premises, or reducing the size of your workforce, to reduce payroll expenditure.

Put limits on staff expenses

If your employees can claim expenses, or buy raw materials and equipment with the company’s money, these costs can soon start to rack up. It’s a good idea to put a spending limit in place, so each staff member can only spend up to an agreed amount.

Having a clear expenses policy helps, as will training up your staff in good spend management techniques. Expenses cards – such as Webexpenses, Soldo or Pleo – allow you to quickly set spend limits, track expenses and pull your expenses data through to your cloud accounting platform for processing.

Look for cheaper suppliers

If you can reduce your supplier costs, this will go a long way to bringing down your overall spend.

If you’ve been with certain key suppliers for years, look around for new quotes, look at current market prices and see if you can negotiate better deals. And if your old suppliers aren’t flexible enough, try swapping to newer, more eager suppliers who will be willing to meet you in the middle on price.

Make your operations leaner

The bigger your operational costs are, the less margin you’ll make on your end products and services.

One way to resolve this is to aim for a ‘lean approach’, paring back your staff, resources and operational complexity to the bare minimum.

By making the business as lean as possible, whilst still delivering the same output, you keep your revenue stable, but reduce the spend level that’s eating into your cost of goods sold (COGS). The smaller your COGS, the more profit you make on each unit or sale – and that means better cash flow, more working capital and bigger profits.

Talk to us about improving your spend management

If you’d like to get in control of your expenses, we’d love to chat.

We’ll review your current costs, run forecasting, and help highlight the key areas where expenses can be cut. Then we’ll help you formulate a proactive spend management programme, to reduce your unnecessary spending.

Xero's short-term cashflow feature for businesses

Business cashflow is simply money coming in and money going out of the business. Your outgoings will include things like rent, payroll, taxes and supplies. Your income will be revenue from sales but might also include investment funds or the sale of assets.

For most businesses, income and expenditure don’t always happen at the same time so focussing on strong cashflow management will help you prepare for the shortfalls and also manage surplus income.

Cashflow reports allow you to look back at cashflow in your business. This can uncover cashflow patterns over time and show you how much money you need to run your business each month.

Cashflow forecasts look forward by combining payment dates and due dates for invoices, to give you an idea of what your cashflow will be like going forward.

Managing healthy cashflow

Xero’s short-term cash flow feature gives you an up-to-date dashboard view of your organisation's cashflow. You can choose multiple bank accounts and see the projected cashflow over 7-30 days. The more information you include, the more accurate your forecast will be.

Healthy cashflow management gives you better control, so you are more prepared for growth or for the unexpected. Read the article at Xero Central to learn more about this feature.

We can help. Talk to us about improving your business cashflow.

Understanding working capital to maintain business success

If cashflow is the lifeblood of your business, then working capital is the health check you should regularly undertake to keep your business alive. It is important for you to have an understanding of your working capital to maintain business success. Regularly checking working capital will play an essential part in maintaining business success during these times of greater economic insecurity.

What is working capital?

Working capital is your current assets minus your current liabilities and measures the surplus (or deficit) you have to keep your business afloat without needing to sell assets, borrow more, or add your own money into the business. The more working capital you have, the easier it is to fund growth or weather any downturns.

To calculate your working capital: Cash + debtors + stock + work in progress - creditors - taxes owing

For example, if your business had the following balances:

Cash $150,000
Debtors $120,000
Stock $100,000
Creditors $45,000
Taxes owing $25,000

Then your working capital would be $300,000 ($150,000 + $120,000 + $100,000 - $45,000 - $25,000).

If the business had an overdraft of $150,000 rather than a positive cash balance, the working capital would be zero. This means the business would have no cash to cover any slowdown in debtor payments or a downturn in sales (which would lead to higher stock levels). Worse, the business could be in serious trouble for trading while insolvent.

It’s likely your working capital has taken a hit due to Covid-19. Now is the time to review your processes and boost your working capital.

Consider the following strategies:

Build up enough cash to cover at least 2 months’ sales value

One of the key learnings from lockdown was how important it is for businesses to have enough cash in the bank to get them through a shutdown. Use the average sales value for the last six months to calculate the amount you’ll need, then manage your expenses to build your cash stocks up to this level.

Renegotiate your debt

If your business has an overdraft, could the core debt be negotiated into a term loan? Have you spoken to your bank manager about options for managing your debt as a result of Covid? We can work with you and your bank manager to determine your best finance options.

Negotiate with suppliers

Speak to your suppliers and see if you can negotiate better terms. This might be a discount for early payment or longer payment terms. They’ll be suffering too, so work together to come to the best arrangement for you both.

Set aside money for taxes

Calculate the percentage of sales you need to put aside for taxes and put this aside in a separate bank account so you have the cash to cover tax payments as they fall due.

Inject sufficient funds

If the above strategies don’t boost your working capital sufficiently, you’ll need to invest your own funds into your business to cover your working capital requirements.

Even with the many challenges of a post-pandemic economy, undertaking regular working capital checks is an effective way to help increase your business’s cashflow. We can help you calculate your working capital requirements and identify strategies you can implement to increase your working capital.

“Change is not a threat, it’s an opportunity. Survival is not the goal, transformative success is.” - Seth Godin

We can help. Talk to us about your working capital.