Quick answer
How much working capital do you need? Enough to carry one full cash cycle (your daily cash costs × stock days plus debtor days minus supplier days), plus your biggest tax lump, a buffer for slow payers and your seasonal dip. Subtract the cash you hold. What's left is what to borrow: the steady part as a loan, the swings as a line of credit.
Key points
- Layer 1: daily cash costs × cash conversion cycle days.
- Layers 2–4: biggest tax lump, slow-payer buffer, seasonal dip.
- Use the days customers actually take to pay, not your terms.
- Borrow the steady shortfall as a loan; hold the swings as a line.
Most answers to “how much working capital do I need” stop at a rule of thumb: one trading cycle plus a contingency. That’s true, but you can’t take it to a lender. You need a dollar figure, built from your own ledger, that shows which part is permanent and which part comes and goes. The method below takes about half an hour with your accounting software open, and it ends with a borrowing amount rather than a vague feeling.
Why “current assets minus current liabilities” doesn’t answer the question
Net working capital is a snapshot. It tells you what the balance sheet held on one date. Export Finance Australia sets out that formula and then admits that “the amount of working capital a business needs will vary enormously” with business type and operating cycle (Export Finance Australia). True, but not much help when payroll is Thursday.
The requirement is a flow. It’s the cash your business has to keep in motion so stock, wages, rent and suppliers get paid before customers pay you. That depends on three things the balance sheet doesn’t show clearly:
- how many days your cycle runs
- what each day costs in cash
- the lumps and dips that land on top of the cycle
So build it in layers.
Layer 1: what one cash cycle costs
Daily cash cost. Take the last 12 months of operating costs, including cost of goods, wages, super, rent and overheads. Leave out depreciation and loan principal. Divide by 365.
Cycle days. Stock days + debtor days − supplier days. If you need a refresher on each component, our working capital gap guide walks through it. The industry comparison shows why a café and a wholesaler land at opposite ends.
Layer 1 = daily cash cost × cycle days.
The working capital gap calculator does this sum for you. But before you trust the output, check one input in particular.
Use the days customers really take, not your terms
This is where most working capital requirement calculations go soft. Owners plug in 30 debtor days because that’s what the invoice says. The ledger usually says otherwise.
The federal Payment Times Reporting Scheme tracks how large businesses pay small suppliers. Its August 2026 update (reports for periods ending by 31 December 2025) found an average common payment term of 29 days. But only 80% of small business invoices were paid within 37 days, and it took 55 days to clear 95% of them (Payment Times Reporting Regulator). Around three in ten invoices were still unpaid at 30 days.
So run debtor days from your aged receivables over the last six months. If you sell to big companies, size for the slow tail, not the average.
Layer 2: the biggest tax lump
Tax doesn’t follow your cycle. It lands on fixed dates, and quarterly BAS (GST, PAYG withholding and any PAYG instalment) arrives as one payment. For the July–September quarter, the standard due date is 28 October 2026. The October–December quarter is due on 28 February, and businesses lodging through a registered agent may get later dates under the agent lodgment program (ATO activity statement due dates).
Add your largest quarterly BAS payment from the past year, unless you genuinely keep GST in a separate account and never touch it. Most businesses don’t, and that’s fine, as long as the requirement admits it.
Super is now a smaller, more frequent lump. Since Payday Super began on 1 July 2026, contributions leave the account close to each pay run instead of quarterly. Our Payday Super guide shows how that reshapes the timing.
Layer 3: the slow-payer buffer
One large customer stretching from 30 to 60 days can wipe out a month’s headroom. Add a buffer for that:
Layer 3 = daily sales × extra days you’d survive a slow payer.
Ten extra days is a sensible floor for most businesses selling on account. If one customer is more than a quarter of your debtor book, size the buffer around that customer alone. If late payers are already a regular problem, late-paying customer funding goes deeper.
Layer 4: the seasonal dip
Pull up your bank balance month by month for the last two years and find the low point. For many businesses it’s late January: wages and leave paid over the Christmas shutdown, customers back late, invoices from December not yet paid. For others it’s pre-season stock.
Layer 4 = how much deeper that low point goes than an average month. If you’ve never measured it, the seasonal peaks page shows the common patterns.
A worked example: an illustrative regional contractor
This is a made-up electrical contractor, not a client.
| Input | Figure |
|---|---|
| Annual sales | $1,800,000 |
| Annual cash operating costs | $1,533,000 |
| Daily cash cost | $4,200 |
| Stock days | 12 |
| Debtor days (from the ledger; invoice terms say 30) | 48 |
| Supplier days | 25 |
| Cash conversion cycle | 35 days |
| Layer | How it’s built | Amount |
|---|---|---|
| 1. One cycle | $4,200 × 35 days | $147,000 |
| 2. Biggest BAS lump | Largest quarter last year | $60,000 |
| 3. Slow-payer buffer | About $4,900 daily sales × 10 days | $49,000 |
| 4. Seasonal dip | January low vs an average month | $40,000 |
| Peak requirement | $296,000 | |
| Less cash usually held | $95,000 | |
| Shortfall to fund | about $201,000 |
Notice that using 30 debtor days instead of 48 would have cut layer 1 to about $71,000. The owner would have borrowed too little and been back for more within a quarter, which is slower and costs more than getting it right the first time.
How much working capital to borrow, and in what shape
The shortfall isn’t one kind of money, so it shouldn’t be one kind of facility.
- The steady part. Layer 1 minus the cash you hold: $147,000 − $95,000 = $52,000. This gap exists every day of the year. A working capital loan over a term that matches how long the gap persists fits it.
- The swings. Layers 2 to 4: $149,000. This money is needed for weeks at a time, then repaid. A business line of credit suits it, because you draw at the peak and pay it back when the BAS is cleared or January’s receipts arrive.
Borrowing the whole $201,000 as a lump sum means paying for $149,000 that sits idle most of the year. Covering everything with a line can tempt a business to fund permanent needs with a revolving limit that never comes back down. Splitting it avoids both mistakes.
Here’s the size check: both pieces sit inside the $5,000 to $500,000 range that unsecured, cash flow and line-of-credit options typically cover for trading businesses, sized on turnover and bank statements. If you’ve done these sums and the number’s in that range, check your options here. It takes about a minute.
Working capital needed for growth: the extra-sales rule
The requirement isn’t fixed. It rises with sales, because every extra day of the cycle now costs more. A quick rule:
Extra working capital ≈ extra annual sales × cost ratio × cycle days ÷ 365
For the contractor, costs are about 85% of sales and the cycle is 35 days, so each extra $100,000 of annual sales ties up about $8,150 more. A $400,000 growth year needs roughly $32,600 more in layer 1 alone, and the BAS lump and slow-payer buffer grow with it. Plan the increase before the growth arrives. The growth capital page covers staging it.
How fast can each slice be in place?
| Slice | Usual fit | How fast it can land |
|---|---|---|
| Steady shortfall, smaller amount | Unsecured working capital loan | Same day possible for smaller amounts |
| Swings | Line of credit | Takes a little longer to open; very fast to draw once it’s open |
| Large shortfall, property available | Second mortgage or caveat | $20k to $250k possible same day; up to $5m possible within 24–48 hours |
Speed is possible, never guaranteed. Recent bank statements, an aged receivables report and a clear explanation of your sums all shorten the path. The line of credit is the one to set up before the October BAS or the January dip, not during it.
Three mistakes that make the number wrong
- Sizing to an average month. The business fails at its low point, not its average. Always size to the peak requirement.
- Counting overdue debtors as cash. A 90-day invoice from a customer in dispute isn’t working capital. Take it out of your “cash usually held”.
- Forgetting the tax lumps are already spent. If GST collected has gone into stock and wages, the BAS is a working capital need, whatever the profit and loss says.
Got your number? Let’s get started
Doing this sum is the hard part, and most owners never do it. If yours shows a gap, the next step is matching each slice to the right facility at the right size, so you aren’t over-borrowing or coming back in three months.
Making an enquiry takes about 60 seconds, and asking leaves your credit file alone: there’s no credit check just for finding out where you stand. We don’t send your details to a pile of lenders, so your phone won’t light up with strangers. A real person reads what you’ve sent, looks at your cycle and calls you to talk it through. Please fill the form in accurately, especially turnover, the amount and how quickly you need it, so the first conversation lands on the right option.
Frequently asked questions
How much working capital does a small business need?
There's no single percentage that fits everyone. Work it out from your own cycle: daily cash costs multiplied by stock days plus debtor days minus supplier days, then add your largest tax payment, a slow-payer buffer and your seasonal low point. A café paid at the till may need very little; a contractor on 30-day terms may need several weeks of costs.
What is the working capital requirement formula?
A practical version is: (annual cash operating costs ÷ 365) × cash conversion cycle days, plus peak one-off outflows such as BAS, plus a buffer. The accounting measure, current assets minus current liabilities, tells you what you hold today, not what you need.
How big should a working capital loan be?
Big enough to cover the permanent shortfall between what your cycle needs and the cash you keep, and no bigger. Swings that come and go are usually better held as a line of credit so you aren't paying for idle money in the quiet months.
How much extra working capital do I need to grow?
Roughly your cost ratio × cycle days ÷ 365 for every extra dollar of annual sales. With costs at 85% of sales and a 35-day cycle, each extra $100k of annual sales ties up about $8k more cash, before the new revenue catches up.
Should I use my payment terms or real payment times for debtor days?
Real payment times from your aged receivables. Federal Payment Times data shows large businesses offering about 29-day terms but taking 55 days to clear 95% of small business invoices, so terms alone understate the cash you need.
Can I get a working capital line of credit without property?
Often, yes. Unsecured, cash flow and line-of-credit options for trading businesses typically run from $5,000 to $500,000, sized on turnover and bank statements. Above that, or for a faster or larger limit, property-secured options run from $20,000 to $5,000,000.