How much working capital does a business need?

Ask ten business owners how much working capital they need and most will name a round number that feels comfortable. That is better than nothing, but it is not a plan. The real figure comes from how cash moves through your business, and it changes as the business grows.

What working capital actually means

In accounting terms, working capital is current assets (cash, money owed by customers, stock) minus current liabilities (money owed to suppliers, the ATO and short-term lenders). For day-to-day planning, a more practical question is: how much cash does the business need to have available so it never has to delay wages, suppliers or tax while it waits for customers to pay?

That answer depends on three timings:

1. Debtor days: how long customers take to pay you.
2. Stock days: how long stock or materials sit before they are sold or used.
3. Supplier days: how long you take to pay your own suppliers.

Debtor days plus stock days, minus supplier days, gives your cash conversion cycle. The longer the cycle, the more cash the business needs to keep turning over.

A simple way to calculate it

Take your annual sales and divide by 365 to get daily sales. Do the same with your annual cost of goods or materials. Then:

Component	Calculation
Cash tied up in debtors	Daily sales x debtor days
Cash tied up in stock	Daily cost of goods x stock days
Less: credit from suppliers	Daily cost of goods x supplier days
Working capital need	Debtors + stock - supplier credit

The working capital calculator does this for you and shows how much a 10% growth spurt would add.

Prefer to talk it through? Start with the 60-second enquiry so the first call is about options, not paperwork. No credit check at this stage.

An illustrative example

A wholesaler turns over $2.4m a year with cost of goods of $1.6m. Customers take 40 days to pay, stock sits for 35 days and suppliers give 30 days.

• Daily sales: about $6,575. Debtors: about $263,000.
• Daily cost of goods: about $4,380. Stock: about $153,000.
• Supplier credit: about $131,000.

Working capital need: roughly $285,000. If sales grow 20% with the same timings, the need grows to about $342,000, even though the business is more profitable. That extra $57,000 has to come from somewhere.

Add a buffer

The calculation shows the average need. Real life is lumpier. Add a margin for:

• Late payers: what happens if your biggest customer pays 30 days late?
• Tax: the quarterly BAS, PAYG instalments and, since 1 July 2026, super with every pay run.
• Seasonality: the dip before your busy season, when stock is high and sales are low.
• Surprises: a breakdown, a lost client, an unexpected bill.

Many owners find the buffer is as large as a month or two of fixed costs.

Where should the money come from?

The base level of working capital is best funded by the business’s own cash and retained profits. The swings above that base, the peaks before Christmas or while a big debtor is overdue, suit a revolving facility. A business line of credit sized to those swings means you pay mainly for what you use. If the gap is driven by business customers on terms, invoice finance can grow with your debtor book.

Reduce the need, not just fund it

Every day you shave off the cycle frees cash. In the example above, cutting debtor days from 40 to 30 releases about $66,000. Our guide to cutting debtor days has practical steps, and longer supplier terms or leaner stock work the same way.

When the need keeps growing

If your working capital need rises faster than your profits, you are funding growth from cash flow. That is common and manageable with the right facility, but it needs watching. Our guide on growing without running out of cash explains the warning signs.

Related reading

• Working capital loans: Working capital loans cover the gap between paying out and getting paid. How they work, how much is typical and when a line of credit suits better.
• Business line of credit: A business line of credit gives you a limit to draw on and repay as cash flow moves. How it works, what it costs in practice and who it suits best.
• Debtor days and how to cut them: Debtor days measure how long customers take to pay you. How to calculate them, why they matter for cash flow and practical ways to bring them down.
• Growing without running out of cash: Why fast-growing businesses run short of cash, the warning signs of overtrading and how to fund growth without putting the business at risk.

Terms used in this guide

• Line of credit: an approved limit the business can draw, repay and draw again, usually paying interest only on the drawn balance.
• Working capital: the cash a business needs to keep running while money is tied up in stock and unpaid invoices.
• BAS: the business activity statement used to report and pay GST, PAYG withholding and other amounts to the ATO.
• PAYG withholding: tax withheld from wages and other payments, which the business passes on to the ATO.

Before you accept an offer

• What will this cost in total, not just per week?
• Are there establishment, line or exit fees?
• Can the term be extended if a sale or refinance is delayed?
• Which assets or properties are being used as security?
• How quickly can the facility be closed if I no longer need it?

Getting advice alongside funding

Before committing, run the plan past your accountant or bookkeeper. They can check that the amount matches the real need, that the repayments fit your cash flow forecast and that nothing in your tax position will cause a surprise. If property or guarantees are involved, everyone signing should understand what they are agreeing to, and some may want independent legal advice.

The short version

• Working capital need = cash tied up in debtors and stock, minus supplier credit
• Growth increases the need even when profit rises
• Add a buffer for late payers, tax and surprises
• A line of credit can cover the swings on top of your own cash

How the process runs

We keep it simple. Your enquiry goes to one team. That team calls you, confirms the details, asks for bank statements or property details and tells you honestly what looks achievable. If the right answer is a payment plan, a conversation with a supplier or waiting a quarter, we will say so. If funding fits, you get the amount, term, repayments and total cost spelled out before you sign anything. You will always know who is handling your file and how to reach them.

Is funding the right answer here?

Ask yourself where the repayment will come from. A customer payment, the next peak season, a property sale or steady trading are all real sources. Hope is not. If you can point to the money that will clear the loan, and roughly when, funding is likely to help. If you cannot, talk to your accountant about the underlying numbers first.

Getting your details together

A little preparation makes the first conversation far more useful, and it means the person who calls you can talk about options rather than chasing basic details:

• Your ABN and the legal name of the business.
• Online banking access, so recent statements can be shared through a secure read-only link.
• A rough figure for monthly turnover and the amount you need.
• A list of current loans and repayments, including any ATO payment plan.
• If property is involved, the address and roughly what is owed on it.

A quick word on the enquiry form

Late surprises are what slow funding down. A second property owner nobody mentioned, turnover that is lower in the statements than on the form, an amount that doubles after the first call: each one sends the assessment back to the start. If you tell us the full story at the beginning, even the awkward parts, the file only has to be worked through once.

Talk to a real person

Have a figure in mind? Put it in the enquiry. There is no credit check for asking, you will not be passed around a panel of lenders and you will speak to someone who has read your answers. Take a moment to get those answers right. Accurate details about revenue, time trading and credit mean we can match you properly first time, without the back and forth.