Why your Aussie small business needs access to working capital
“According to the Australian Bureau of Statistics, cashflow remains one of the primary challenges cited by small and medium enterprises, further underscoring the importance of proactive working capital solutions."
How Debtor Finance Can Fuel Australian Business Growth, Jasmine Business Directory
Access to working capital is what allows your small business to trade, expand and scale. But what exactly is working capital and why is it such a vital part of financing your business?
What is working capital?
Working capital is the cash and short-term assets that are available for the day-to-day running of your business. It’s calculated by subtracting your current liabilities (debts and other payments) from your current assets (cash and the other things you own).
In essence, working capital is a measure of your company's operational liquidity and your ability to pay immediate debts while funding growth.
Why is having good working capital so important?
Without working capital in the business, you don’t have the liquid cash that’s required for a small business to operate and grow over time.
Working capital:
- Bridges any cashflow gaps: Working capital covers your upfront supplier costs while you wait for customer invoices to be paid. This keeps you in a positive cashflow position.
- Funds your business growth: With cash in the bank you can confidently buy more inventory, hire staff and jump on opportunities to scale up and grow.
- Helps you survive economic shocks: Having liquid cash behind you protects the business against inflation and rising costs, preventing expensive emergency borrowing.
For many small businesses, it’s necessary to occasionally top up your working capital. But how do you access this additional capital without getting the business into huge debt?
Three ways to increase your access to capital:
- Take out working capital loans: You can access debtor finance or invoice financing to boost your capital position and fund your daily operations.
- Optimise your pricing and revenues: Raise your prices and bundle services to boost margins. This instantly generates higher cash inflows from your existing customer base.
- Trim your overhead expenses: Cut any non-essential software, renegotiate supplier terms, and reduce waste to lower your expenses and retain more cash in the business.
