Understanding Business Working Capital: A Vital Element For Business Success.


Understanding Business Working Capital: A Vital Element For Business Success.


In the dynamic world of business, one term that is often talked about, but is not clearly understood is “working capital.” 

It’s not just a buzzword but a critical factor that can determine the health and success of a business. In this article, we’ll explain the concept of business working capital, its significance and how it impacts the overall operations of an enterprise.

What is Working Capital?

There is a saying that “Cash is King”. Similarly, working capital is the lifeblood that keeps a business operational, allowing it to meet its short-term financial obligations and fund day-to-day operations. In simpler terms, it’s the difference between a company’s current assets and its current liabilities. 

Current assets include cash, accounts receivable, and inventory, while current liabilities consist of accounts payable, short-term loans, and other obligations that need to be settled within a year.

The Significance of Working Capital:

Working capital is the engine that powers the basic functions of a business, including purchasing raw materials, paying salaries, and covering operational expenses. Having an optimal level of working capital is crucial for several reasons:

  • Smooth Operations: Adequate working capital ensures that a business can continue its operations without disruptions. It allows a company to maintain inventory levels, fulfil customer orders, and pay suppliers promptly.
  • Flexibility: Businesses with healthy working capital are better equipped to seize opportunities and weather unexpected challenges. Whether it’s investing in expansion, capitalising on market trends, or navigating economic downturns, having ample working capital provides the flexibility needed to make strategic decisions.
  • Credibility: A company’s working capital position is often an indicator of its financial health. Lenders, investors, and suppliers use this metric to assess a business’s ability to honour its commitments. A positive working capital portrays a well-managed company that can meet its obligations on time.
  • Risk Mitigation: In times of economic uncertainty or seasonal fluctuations, having a buffer of working capital (or access to adequate working capital loans) can act as a cushion against revenue shortfalls. It reduces the risk of defaulting on payments and maintains stability in the face of adversity.


Calculating Working Capital:

The formula for calculating working capital is simple:

Working Capital = Current Assets minus Current Liabilities

A positive working capital indicates that a company has more current assets than current liabilities, which is generally considered a healthy position. Conversely, a negative working capital could be a sign of financial distress, as it suggests that short-term obligations exceed available resources.

Strategies to Manage Working Capital:

Effective working capital management involves striking a balance between optimising liquidity and minimising excess tied-up capital. Here are some strategies to consider:

  • Inventory Management: Keeping inventory levels lean reduces the amount of capital locked up in unsold products. Just-in-time inventory systems and data-driven forecasting can help achieve this.
  • Accounts Receivable: Shorten the time it takes to collect payments from customers. Offer discounts for early payments and establish clear credit policies.
  • Accounts Payable: Negotiate favourable terms with suppliers without straining relationships. Extending payment terms without compromising the supply chain can improve cash flow.
  • Cash Flow Forecasting: Accurate cash flow projections help anticipate periods of surplus or deficit in working capital, enabling proactive planning.
  • Optimised Pricing: Ensure that your product or service pricing covers both operational costs and a portion of working capital requirements.


In Conclusion:

Working capital is the lifeblood of any business, providing the necessary financial resources to keep the business running smoothly. Its management is a delicate balancing act that requires a deep understanding of the company’s cash flow dynamics, market conditions, and strategic goals. By prioritising working capital management, businesses can position themselves for resilience, growth, and long-term success in a dynamic and competitive environment.

We are passionate about helping businesses to survive and thrive and we specialise in business working capital. We’ve helped many businesses to free-up cash for growth. We would be delighted to have a conversation about your business, why not give us a call?

700 500 Proteger Financial Solutions

Driving Business Success: The Essentials Of Working Capital Finance.


Driving Business Success: The Essentials Of Working Capital Finance.

In our last article “Understanding Business Working Capital. A Vital Element for Business Success”, we provided an introduction and overview of Business Working Capital. This article delves a little deeper into the reasons why successful businesses use working capital finance.

In this article, we’ll delve into five compelling reasons why working capital finance can substantially enhance your business.

1. Navigating Volatile Economic Times:

Businesses frequently encounter economic fluctuations that are outside of their control. Economic changes can disrupt cash flow. During such periods, working capital finance acts as a stabilising force. Whether it’s maintaining salaries, procuring essential resources, or fulfilling immediate obligations, adequate working capital finance ensures business continuity, minimising disruptions during turbulent times.

2. Capturing Growth Opportunities:

In the pursuit of growth, capitalising on timely opportunities is paramount. Working capital finance enables agility in seizing growth prospects. Whether the growth involves introducing new product lines, entering emerging markets, or ramping up production, the availability of funds accelerates decision-making and execution, propelling your business to new heights.

3. Managing Seasonal Variations:

The ebb and flow of payments from clients and suppliers can strain your bank balance. Effective management of cash flow gaps is integral to operational efficiency. Working capital finance bridges these gaps, preventing financial bottlenecks. By using working capital finance to smooth your accounts receivable and payable cycles, you can ensure the uninterrupted flow of cash.

4. Optimising Inventory:

Inventory management directly impacts your cash at bank. Excessive stock ties up capital, running out of stock hinders sales (or production). Working capital finance enables businesses to fine-tune inventory levels, aligning stock levels with demand fluctuations. This leads to efficient capital utilisation, reduced carrying costs, and increased responsiveness to market trends.

5. Tailored Repayment Structures:

Working capital finance isn’t a one-size-fits-all solution; it’s adaptable to business needs. From short-term loans to revolving credit lines, the repayment structures accommodate different revenue cycles. This flexibility prevents undue financial strain and empowers businesses to manage their financial commitments prudently.

In conclusion, the integration of business working capital facilities can provide measurable advantages. It helps to maintain financial equilibrium, harness growth opportunities and streamline operations.

Regardless of your business or industry, working capital finance serves as a catalyst to  reduce cash stress and position your business for sustainable success.

We are passionate about helping businesses to achieve success and we are experts in Business Working Capital Finance. If you would like to discuss your business working capital requirements, why not give us a call?

700 500 Proteger Financial Solutions

How To Use Working Capital Loans For Business Success


How To Use Working Capital Loans For Business Success

Continuing our theme of how to use Working Capital Loans for Business Success, we are pleased to provide the third in our series.

If you missed the previous articles they are; “Understanding Business Working Capital, a Vital Element for Business Success” and “Driving Business Success: The Essentials of Working Capital Finance

This article goes one further step, to describe a sample of the working capital facilities that are available. We also provide a worked example of how the strategic use of Working Capital can help to drive business success.

Types of Working Capital Loans:

1. Short-Term Loans: 

Short-term loans are a common form of working capital finance where businesses borrow a specific amount of money for a short duration, usually less than a year. These loans provide a quick injection of capital to cover immediate operational needs, such as payroll, inventory, or addressing cash flow gaps. Interest rates and terms vary, and businesses typically repay the loan in regular instalments.

2. Revolving Credit Lines: 

A revolving credit line is a flexible form of working capital finance that provides a pre-approved credit limit. You can withdraw funds as needed and repay them over time. The key advantage is that once repaid, there are no interest costs and the credit line replenishes, allowing businesses to use the same pool of funds repeatedly. It’s like a financial safety net that provides ongoing support for managing day-to-day expenses and unexpected costs. 

3. Invoice Financing: 

Invoice financing involves selling accounts receivable (unpaid customer invoices) to a financial institution at a discounted rate. This provides you with an immediate cash injection, allowing you to access a portion of the funds tied up in pending invoices. The financial institution then collects the full invoice amount from the customer. Invoice financing is particularly useful for businesses facing cash flow gaps due to delayed payments from clients.

4. Trade Credit: 

Trade credit is a form of working capital finance that involves extending the payment terms with suppliers. Instead of paying for goods or services upfront, the lender pays the supplier and you then pay the lender back in an agreed timeframe (usually up to 180-days). This has the effect of providing delayed payment terms, giving you additional time to generate revenue from the purchased inventory before settling the bill. This can help you manage short-term cash flow challenges effectively.

5. Inventory Financing:

Inventory financing specifically targets the funding of inventory purchases. You can use existing inventory as collateral to secure a loan or credit line. This type of working capital finance is ideal for businesses with substantial inventory requirements, such as retail or manufacturing. It ensures that these types of businesses have the necessary funds to purchase inventory without straining cash flow.

6. Supply Chain Financing:

Supply chain financing, also known as reverse factoring, involves collaborating with suppliers and financial institutions to optimise the payment process. Businesses can extend their payment terms to suppliers while offering them the option to receive early payment from a financial institution at a discounted rate. This benefits both parties by improving cash flow and reducing working capital cycles.

In many cases, the different types of finance can work alongside each other. The following is  a hypothetical example of a business that purchases it’s stock from overseas, carries the stock in inventory and sells to its clients on credit terms. In this example, the business can manage its working capital in the following manner:

DayTransactionFinancing Event
OnePurchase StockTrade Credit Loan pays the Supplier
ThirtyReceive StockInventory Finance repays the Trade Credit Loan
SixtySell Stock on credit termsDebtor Finance repays the Inventory Loan
NinetyCustomer Pays the InvoiceDebtor Finance Facility is Repaid

In the above example, the business has used working capital for business success because it funds the entire working capital cycle from start to finish with no, or very little capital cost to them. The whole cycle is financed. The alternative is that the business pays the supplier according to their trade terms. They then carry the cost of the stock until it is sold, they then wait for payment by their client. The end payment could easily be 90-days + from the time of the original cash outlay, which is an expensive exercise.


Each of these types of working capital finance has its advantages and considerations.

The choice depends on the specific needs, financial health, and goals of the business. It’s crucial to thoroughly assess each option and select the one that aligns best with the business’s operational requirements and overall financial strategy.

We are passionate about business success and we are experts in business working capital. If you would like to understand what is possible for your business, why not give us a call?

700 500 Proteger Financial Solutions

Borrowing For Your SMSF With An LRBA


Unlocking Wealth: Borrowing For Your Self Managed Superannuation Fund (SMSF) With A Limited Recourse Borrowing Arrangement (LRBA)


This month, we are talking about a finance option that has gained popularity in recent years; that is the Limited Recourse Borrowing Arrangement (LRBA) for Self Managed Superannuation Funds (SMSFs). If you’re considering your retirement savings, or perhaps exploring new investment avenues, this article is for you. We’ll look at the benefits, risks, and the process of borrowing money for your SMSF through an LRBA. 

Benefits Of Using An LRBA For Your SMSF:

Leveraging Your Investment: With an LRBA, you can leverage your SMSF’s capital by borrowing to purchase assets. Borrowing can potentially boost your returns if the investments perform well. Borrowing can also magnify your risks, please refer to the next section.

Diversification of Investments: A key advantage of using an LRBA is the ability to diversify your investment portfolio. Instead of relying on traditional assets like managed funds and shares, you can invest in assets such as residential and commercial properties.

Tax Benefits: SMSFs are known for their favourable tax treatment, and LRBAs can enhance these benefits. Income generated from investments held within the SMSF is typically taxed at a concessional rate, potentially reducing your tax liability.

Control and Flexibility: An SMSF with an LRBA gives you greater control over your investments and the flexibility to tailor your portfolio to your financial goals. You can choose the assets that align with your risk and investment strategy, as opposed to to relying on a fund manager who you have never met.

Risks To Consider:

Interest Rate Fluctuations: Borrowing via an LRBA exposes your SMSF to interest rate risk. At the time of writing this, we’ve seen the most dramatic increase in rates for a long time. If/ when interest rates rise, your loan repayments may increase, impacting your fund’s cash flow.

Property Market Volatility: If your SMSF invests in property, it’s crucial to be aware of the property market’s ups and downs. Property values can fluctuate, affecting the overall performance of your SMSF. As with any investment strategy, it’s important to consider the diversity of your portfolio.

Loan Repayment Obligations: SMSFs with LRBAs must meet loan repayment obligations, which can be a significant commitment. Failing to make repayments on time could lead to penalties and a potential loan default and potentially a forced sale of the asset.

Complexity and Costs: Setting up and managing an LRBA can be complex and may involve additional costs, such as legal and administrative fees. It’s important to carefully consider whether the potential benefits outweigh these costs.

The Process Of Borrowing Money Via An LRBA For Your SMSF

Seek Professional Advice: Before considering an LRBA, consult with financial advisors, accountants, and legal experts who specialise in SMSFs. They can help you assess whether an LRBA is suitable for your financial goals.

Create or Update Your SMSF Trust Deed: Ensure that your SMSF’s trust deed allows for LRBAs. If it doesn’t, you may need to update it.

Select the Asset: Choose the investment asset you wish to purchase with the borrowed funds. It could be property, shares, or another asset that complies with SMSF regulations.

Secure Financing: Apply for a loan through your SMSF. Keep in mind that the loan must be a limited recourse loan, meaning the lender’s recourse is limited to the asset purchased with the borrowed funds.

Ensure Compliance: Your SMSF must adhere to strict compliance regulations, including annual audits, reporting, and repayment of the loan from SMSF assets.

Monitor and Manage: Continuously monitor your investment and loan performance. Adjust your strategy as needed to ensure your SMSF remains on track to meet its financial goals.


Borrowing money for your SMSF through an LRBA can be a powerful tool for building wealth. However, it comes with risks and complexities that require careful consideration and expert guidance. By understanding the benefits, risks, and the process involved, you can make informed decisions to maximise the potential of your Self Managed Superannuation Fund. Remember, the key to success is a well-thought-out strategy and ongoing diligence in managing your investments.

Please note that all of the above is general advice. We can provide you with Credit Guidance on the LRBA loan however, we are not qualified to give investment or tax advice. When we write an SMSF loan, we will work closely with your financial partners, including your accountant, financial planner and lawyer. If you do not have any of these contacts, we can introduce you to someone in our circle of trusted advisers.

700 500 Proteger Financial Solutions
(08) 6246 2680