Working capital is one of the fundamental figures an ecommerce business needs to focus on. As a measure of a business’s short-term liquidity, it is important your business maintains a healthy surplus to help ride out periods of low revenue or seasonal cycles.

Having a healthy surplus impacts a lot more than just revenue fluctuations, so I’ve prepared a quick video [and transcript below] to help you understand all the ways working capital can impact your business.

we’re here to help!

The team at businessDEPOT has a wealth of experience and working knowledge around managing working capital for ecommerce businesses.  If you’d like us to have a look at your numbers and help you through your business journey, you can get in touch with us at or give us a buzz on 1300BDEPOT.




what is working capital?

Simply, it is a measure of a business’s short-term liquidity. It compares the business’s current assets versus current liabilities.


why is working capital important?

First and foremost, working capital is used to fund a business’s day-to-day operations. It funds a business’s crucial operating requirements, such as paying employees, funding inventory purchases, making repayments on loans and covering tax payments.

A healthy working capital surplus will help a business ride out periods of low revenue or seasonal cycles. For example, you may want to plan on purchasing additional inventory in October to cover increased sales over the Christmas period. Working capital funds the additional upfront purchases, which allows you to increase your sales volume over Christmas.


driving growth

A healthy working capital balance can also be used to fund businesses’ growth, without the need to draw debt or have the owners chip in additional capital. With a solid balance, a business can potentially cover the costs of growth, while still having enough cash left over to meet the short-term operational requirements.

For example, you may need to move to a bigger warehouse to increase inventory holding levels, in order to take on a bigger client, fund an advertising campaign, hire additional support staff or develop a new product for sale.


distributing profits

Amongst the vast reasons we see for why people own their own businesses, one common reason they do is to provide a source of wealth and income for their family. If you’re looking to distribute the profits made by your business back to your family, where do those funds come from? Working capital.


sustaining a healthy working capital balance

The starting point should always be good budgeting, forecasting and reporting. Starting with a three-way budget that includes a cash flow, will help you plan for any potential pinch points and give you an insight into the available working capital for day-to-day operations and growth.

Will you need an overdraft to cover a stock purchase leading into a busy period? A good forecast will give you this data.

You also need to track your actual performance against the budget and look at a few key metrics, such as your free cash flow and your ability to turn your profit into cash. You should also look at the areas which traditionally lock up working capital, such as inventory, debtors and creditors. Can you find improvement in this area?



general advice disclaimer

The information provided on this website is a brief overview and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision. Please consult with an appropriate professional before making any decision.