Quick answer
Your working-capital gap is the cash you must fund before customers pay: the costs you cover while waiting to be paid, plus any one-off spend, minus the cash buffer you already hold. Work it out from monthly fixed costs, days to get paid, the one-off amount and your buffer. If the result is positive, that is the gap to close.
Key points
- Gap = costs you carry while waiting to be paid, plus any one-off spend, minus your cash buffer.
- Days to get paid is the biggest lever: every extra week of waiting adds a week of costs to the gap.
- Runway (weeks of cash left) tells you how urgent the gap is.
- You can shrink a gap by collecting faster, buying later and trimming costs before you borrow.
Ask ten business owners how much cash they need and nine will name a number that sounds right. Ask them to show the working and most go quiet. The working-capital gap is the working. It turns a vague worry (we’re a bit tight) into a figure you can plan around, negotiate against and, if necessary, fund.
What is the working-capital gap?
It is the cash you have to put up before your customers’ money arrives. Every business that sells on credit, buys stock ahead, or pays people before invoices clear carries one. The gap is not a sign of a failing business. It is the price of trading in a world where money moves slower than costs.
The shape is straightforward:
Gap = (costs you carry while waiting to be paid) + (any one-off spend) − (cash you already hold)
If the answer is zero or negative, you are covered. If it is positive, that positive number is the amount you must find, by collecting sooner, spending later, trimming costs, drawing on savings or borrowing.
Business.gov.au describes cash flow as the flow of money through a business so there is always enough to cover expenses, debts and the owner’s needs. The gap is the measure of whether that is true this month.
How do I work out the costs I carry while waiting?
Two numbers do most of the work.
Monthly fixed costs. The bills that arrive regardless of sales. Rent, wages and super, insurance, loan repayments, software, vehicle costs and the regular parts of tax. Take them from the last three months of bank statements, not from memory.
Days to get paid. The typical time between doing the work (or sending the invoice) and the money landing in your account. For cash sales it is zero. For trade customers it might be 14, 30 or 60 days. If your mix is varied, use a weighted guess: the share of sales on credit times the typical wait.
Then:
- Daily cost = monthly fixed costs × 12 ÷ 365.
- Float tied up = daily cost × days to get paid.
The float is the money you have effectively lent your customers for free, in the form of costs you paid before they did.
What goes in the one-off spend?
Anything that is not an ordinary monthly cost and has to be paid for in the period you are looking at. Examples:
- a piece of equipment or a vehicle deposit;
- a fit-out or a shopfront upgrade;
- a bulk stock purchase ahead of a peak;
- a BAS or tax bill that has crept up;
- a deposit on a contract, or the materials for a big order.
Keep it to what is real and imminent. Wishful items inflate the gap and make it harder to act on.
A worked example
An illustration, using no real business. A small catering company has fixed costs of $30,000 a month. Its corporate clients pay in about 30 days, though a third of its sales are paid on the day. The owner estimates a weighted wait of roughly 20 days. It wants to buy a $12,000 refrigerated van fit-out and holds $18,000 in the bank.
- Daily cost = $30,000 × 12 ÷ 365 ≈ $986.
- Float = $986 × 20 days ≈ $19,700.
- One-off spend = $12,000.
- Total need = $19,700 + $12,000 = $31,700.
- Less cash buffer of $18,000 = a gap of about $13,700.
That is the number the owner has to find. It is smaller than the $31,700 headline and much larger than the $12,000 van fit-out alone, which is why owners who only look at the one-off spend are so often surprised.
You can do the same sum in seconds with the Dough gap calculator, which also shows your weeks of runway.
What is runway, and why does it matter?
Runway is how many weeks your cash buffer would cover if no customer paid you. Divide the buffer by weekly costs. In the example, weekly costs are about $6,900, so $18,000 gives roughly 2.6 weeks. After the van fit-out, the buffer would be $6,000, under a week.
Runway tells you how urgent the gap is. A gap with eight weeks of runway can be tackled calmly. A gap with one week needs action now. It also flags an uncomfortable truth: a business can have a positive balance and still be days from a missed pay run.
How can I shrink the gap before I borrow?
Business.gov.au’s guidance on improving cash flow suggests levers across pricing, sales, collecting payments, costs, staffing, inventory and assets. Applied to the gap, the most effective are:
- Collect faster. Invoice sooner, automate it, offer a discount or deposit, and follow up overdue amounts on day one. Every day removed from days to get paid shrinks the float.
- Pay later, where fair. Negotiate supplier terms. Even a week’s extension helps.
- Buy later. Order stock closer to the sale, and avoid overstocking.
- Trim costs. Compare deals on energy, insurance, banking and suppliers.
- Sell what you do not use. Idle assets are cash in disguise.
- Phase the one-off spend, if it can be staged.
If you remove a week from days to get paid in the example above, the float falls by about $6,900 and the gap shrinks to around $6,800. That is a free reduction of half the problem.
When does borrowing make sense?
When the gap is real, the cause is timing rather than a broken model, and the business can carry the repayments. A short bridge for a gap with a visible end suits a working-capital loan or a short-term loan. A gap that returns regularly suits a line of credit. A late-paying customer is often the real culprit, and our page on funding when customers pay late covers both the chase and the bridge.
For trading businesses, unsecured funding is typically $5,000 to $500,000, sized on turnover and bank statements. Property-backed funding runs from $20,000 to $5,000,000 for owners who have property and need more.
What are the common mistakes when calculating a gap?
- Using revenue instead of costs. The float is made of costs you pay, not sales you make.
- Forgetting tax. GST, PAYG and super fall due on set dates and belong in your fixed costs. Business.gov.au notes the quarterly BAS dates, among other obligations.
- Ignoring the lumpy months. An average hides the month that hurts. Look at your worst month.
- Forgetting the buffer is not all spare. Some cash is already spoken for. Count only what you can truly use.
- Mixing GST-inclusive and exclusive figures. Pick one and label it.
- Never updating the number. A gap calculated in January may be wrong by June.
How does the gap differ by type of business?
The same formula gives very different answers depending on how a business sells.
A cash-based retailer has a small float, because takings arrive on the day, but may carry a large stock investment, which belongs in the one-off spend when a new range is bought. A trade or project business has a large float because jobs run for weeks before they are invoiced and paid. A wholesaler or food producer has both: stock bought ahead and customers who pay on terms. A professional services firm has little stock but a long lag between work done and cash received, and its main cost is people, so the float can be the largest line of all.
Knowing which type you most resemble helps you decide where to look first. Retailers should look at stock turn. Project businesses should look at deposits and progress payments. Wholesalers should look at both. Service firms should look at billing frequency.
How does the gap change as the business grows?
It grows, usually faster than revenue. Doubling sales roughly doubles the costs you carry while waiting, and so doubles the float. That is why a fast-growing business can feel poorer the better it does. A $15,000 gap at one level of sales is a $30,000 gap at twice that level, unless something else changes.
This is the quiet reason growth needs funding. It is also why the best time to calculate your gap is before a growth step, such as a big new customer, a second site or a new hire, not after. Our pages on hiring staff and big orders show how to model the step.
What do I do with the number?
Write it down, and put a date next to it. Share it with your accountant. Decide which levers to pull, and in what order. If a gap remains after you have done what you can, use the number to talk to a lender, because a precise figure and a clear cause make for a short, productive conversation.
When you are ready, tell us what you have found. A lending specialist reads each enquiry and calls you; there is no credit check just to ask, and your details are not sprayed across a pile of lenders. Accurate numbers from your own statements let us point you to the right option first time. See if you qualify and let’s close the gap.
Frequently asked questions
What is the difference between profit and the working-capital gap?
Profit measures what a sale earns after costs. The gap measures timing: how much cash you need on hand because costs are paid before customers pay. A profitable business can have a large gap.
How do I find my monthly fixed costs?
Add up the bills that arrive whether or not you sell anything: rent, wages and super, insurance, loan repayments, software, vehicle costs and the regular parts of tax. Use real figures from the last three months of statements.
Should I include GST in the calculation?
Be consistent. Business.gov.au advises labelling whether figures include or exclude GST. Many owners work with GST-exclusive figures and treat the BAS as a separate known cost.
What counts as a one-off spend?
Anything that is not part of your ordinary monthly costs: a piece of equipment, a fit-out, a bulk stock purchase, a tax bill, a deposit on a contract.
How often should I recalculate?
Whenever something changes: a new big customer, a rise in rent, a change in payment terms, a seasonal shift. Many owners redo it quarterly.