Andrew has extensive experience in all aspects of personal and corporate insolvency and advisory in Australia. With over 18 years of experience gained working in two of Australia’s foremost corporate restructuring and advisory firms, Andrew is an expert on business restructuring. To know more come to visit here : https://dorksdelivered.com.au/working-capital-and-cash-flow-tips-with-andrew-weatherley/

1. Working Capital and Cash Flow Tips With
Andrew Weatherley

2. What Is a Working Capital Ratio?
Working capital is based on assets that can be converted into cash quickly, such as cash in
the bank, debtors, and stock. These assets are used to pay off liabilities, and they are
essential to a business’s survival. Lack of working capital and cash flow issues are among the
top reasons why businesses fail. It’s a simple concept, where cash and assets are converted
to cash because it’s cash out the door. Profit on financial statements is irrelevant if
liabilities remain unpaid. When giving advice and recommendations in the restructuring
space, understanding a business’s cash flow is crucial.

3. Preparing a Cash Flow Forecast
Having enough cash to cover the costs of a particular process is crucial to ensuring the
underlying viability of a business. To achieve this, the first step is to prepare a cash flow
forecast, which I think every business should have. At WCT, we prepare it on a monthly
basis, and also check in every couple of weeks to track progress. We look at the funds
expected to come in, and analyse whether they have come in or if there has been a shift.
Businesses should be aware of liabilities, such as superannuation GST liability and PAYG
liability, and build cash prior to that month to ensure they can pay those things. However,
there is a point where a business can have too much working capital.

4. How Much Working Capital Is Too Much?
There is a limit to how much working capital a business should have, and different people
may have different views on what that limit is. However, in my experience working in the
restructuring and insolvency space, it is rare to see a business with too much working
capital. Calculating a working capital ratio is important as it indicates whether a business is
deploying its cash well and whether it will have issues paying its liabilities. A ratio of one or
above means that a business has sufficient cash or current assets that can be turned into
cash quickly to pay its liabilities at that point in time.

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