Working Capital
Working Capital & Cash Conversion
How growth consumes cash, and what drives the gap between reported profit and actual cash position.
The business is profitable at R172,468/month — but it needs R587,153 in working capital just to operate at current scale. The director's loan of R154,000 is what fills this gap. The question isn't whether the business makes money — it does. The question is whether it can fund its own cash cycle without the director reaching into his pocket every few months.
The cash conversion cycle
The time between paying suppliers and collecting from customers. Every day in this gap ties up cash.
Days to Collect (DSO)
Days to Pay (DPO)
Cash Conversion Gap (days)
Reading: The business collects from customers in 26 days on average, and pays suppliers in 29 days. That -3-day gap means every rand of revenue sits as working capital for -3 days before it becomes available cash.
Where the cash is
Cash on Hand
Tied Up in Receivables
Director's Loan
Net Working Capital Required
R978,204 is tied up in receivables waiting to be collected. The business needs R587,153 in working capital just to operate at current scale. The director has R154,000 in loans to the business — most of which funds this gap.
Growth eats cash
The business grew 1.7% year-on-year (R13,497,152 to R13,732,474). That growth generated R1,897,153 in profit at a 13.8% margin.
But growth also consumes cash. Every R1 of new annual revenue ties up R0.07 in working capital (26 days / 365). At the current growth rate:
Revenue Growth (12m)
Extra WC Required
Avg Monthly Profit
Monthly WC Drain
The business earned R172,468/month in profit, and growth consumed R1,397/month in additional working capital. Profit more than covers the working capital increase at this scale — but the gap narrows as the business grows. A faster growth rate or a margin squeeze would flip this: profit would no longer fund the incremental working capital, and the director's loan would need to grow to fill the difference.
Director's loan is funding the gap
The director has injected R-45,000 net into the business over the last 12 months. This is the balancing item — when the cash conversion cycle consumes more than profits generate, the director tops up.
What would change the picture
The three levers on the cash conversion cycle, with their estimated impact at current scale:
Reducing DSO from 26 to 14 days is the biggest single lever. If the goal is to scale without increasing the director's loan, the business needs the cash conversion gap to stay flat or shrink as revenue grows. The options: tighter collection, upfront billing (retainers paid in advance), a formal overdraft facility, or invoice factoring.