What is Working Capital — and Why Is It Important?

Working capital is an accounting term, but it answers a very practical question:

At Good Numbers, that’s how we think about working capital.
You can express it as:

• a dollar amount, or
• the number of months your organisation could continue operating

For most small charities, the months view is far more helpful.

Turning working capital into months

A dollar figure on its own can be hard to interpret. Converting working capital into months of operating makes it much easier to understand.

Here’s how:

1. Take your total expenses from last financial year
2. Divide by 12 to get your average monthly spend
3. Divide your working capital by that monthly amount

The result tells you how many months your organisation could keep going if no new income came in.

An example

Using a randomly selected charity from the Charities Register:

• Money in the bank: $23,432
• Power, Internet bills not yet paid: $350
• Contractor invoice not yet paid: $3,231

$23,432 minus $350 minus $3,231 is a working capital of $19,851.

If the organisation spent $101,341 last year:

• Average monthly spend = $8,445
• Working capital = 2.4 months

So, this organisation has about two months of 'runway'. This framing often leads to much clearer conversations at board or committee level:

• “We’re operating month-to-month”
• “We’ve got about 2.5 months of runway”
• “We’re comfortable at around 6 months”

Why this matters for small non-profits

Tier 4 charities are typically:

• Small
• Cash-based
• Volunteer-led
• Operating with very limited reserves

Because of that, working capital is often more meaningful than surplus or deficit.

An organisation can:

• Run a deficit and still be financially okay (if it has reserves), or
• Run a surplus and be under pressure (if cash is tied up or restricted)

Understanding your working capital helps committees and boards to know:

• Whether you can pay your bills
• Whether you have time to respond if funding is delayed
• Whether your organisation is constantly operating on the edge

One last thing

Working capital isn’t about hoarding money.
It’s about giving your organisation time — time to make good decisions, respond to funding delays, and stay focused on your purpose.

At Good Numbers, we think this is one of the most useful financial measures small charities can understand — and one of the easiest to explain when it’s framed in months, not jargon.