If you’re a business owner in Australia, managing cash flow is a constant priority. One key metric that can help you assess and optimise your financial health is working capital. But what exactly is it, and why does it matter?
Working capital is the difference between your current assets—such as cash, inventory, and receivables—and your current liabilities, like payables and short-term debts. It’s a measure of liquidity, showing how effectively your business can cover its day-to-day operations and tackle unexpected expenses.
Healthy working capital ensures your business can:
- Pay suppliers on time
- Meet payroll obligations
- Handle unexpected costs, like equipment repairs or supply chain disruptions
- Capitalise on growth opportunities, such as purchasing inventory or investing in marketing
For Australian businesses, maintaining positive working capital is particularly vital during Q3, when cash flow can fluctuate due to factors like seasonal changes or tax obligations.
(Because everyone loves a good formula…)
Need to improve your working capital?
Follow these simple strategies and you’ll maintain positive working capital as you head into the final Quarters of this financial year:
- Optimise Accounts Receivable – The sooner your customers pay, the sooner you can reinvest!
Speed up the collection of receivables by issuing invoices promptly and offering early payment discounts. - Negotiate Supplier Terms – Sometimes a delay in payments means you can keep on top of your expenses…
Work with suppliers to extend payment terms without straining relationships. - Manage Inventory Efficiently – Extra Toner? Yes. Bulk orders of multi-coloured highlighters? Maybe not.
Excess inventory ties up cash that could be used elsewhere in your business. You can also avoid overstocking by analysing sales trends and using just-in-time inventory practices.
Q3 can be a turning point for businesses. With tax obligations and fluctuating sales often coming into play, managing working capital becomes even more critical. A proactive approach ensures your business remains resilient, regardless of external pressures.
Kaleidoscope Accounting is here to help you simplify the process of proactively planning for future growth. Contact us today at 0417 859 700, or email us at rebecca@kaleidoscopeaccounting.com.au, and let’s get started!
