Here is the founder question: "We did just over £2m last year and the P&L says we had a good year. But there is never any cash. We are always funding the next stock order, waiting on payouts, and putting money aside for a VAT bill that arrives like clockwork. Nobody has ever told us what is normal here. How much working capital should a £2m supplement brand actually carry, and where is the money really sitting?" Here is the direct answer: for a brand at your size, roughly £172,000 of your own cash is permanently at work outside your bank account. About £123,000 of that is stock you have paid for and not yet sold, and about £49,000 is net revenue sitting between customers' cards and your bank in platform settlements. The customer cash in flight is about £59,000 in total, including roughly £10,000 of output VAT. Add sensible safety stock and a slow month of cover, and the honest planning number is about £200,000. It is not lost, and it is not profit. It is the price of admission in a stock heavy, platform settled business, and if you do not plan for it, growth will borrow it from you anyway.
I spend my days inside the numbers of UK supplement and consumer brands between £1m and £20m, and this conversation comes up in almost all of them, usually after a strong quarter when the founder checks the bank and feels poorer than the month before. Nothing is broken when that happens. The cash is doing something the P&L never shows: it is sitting in the working capital.
Here's the Short Version
- A £2m supplement brand (net revenue, so £2.4m of customer takings once VAT is included) carries roughly £172,000 of permanent working capital: about £123,000 in stock and about £49,000 of net revenue still in settlements that have not reached the bank
- Budget £200,000 as the real planning number once safety stock and a slow month are in, which is 10% of net revenue. On the assumptions in this post, the range runs from about 8% to about 13%, depending on stock cover and settlement terms
- A stock order from China ties cash up for five to six months end to end: deposit, balance, freight and duty out first, then sell through and settlement months later
- Your TikTok settlement tier is worth real money. On this brand's mix, the difference between the 31 day starter cycle and the 8 day standard cycle is about £70,000 of cash sitting in the wrong place
- VAT is not working capital, it is money you collect for HMRC. On the illustrative numbers, around £80,000 leaves the account one month and seven days after each quarter ends, and spending it on stock is the most expensive loan you will ever take
- Growth makes the number bigger, not smaller: on these assumptions, every extra £1m of net revenue absorbs about £86,000 more, and a brand growing from £2m to £2.6m should expect about £52,000 of that year's cash to disappear into the machine
- Four levers move it: settlement tier, stock cover, supplier terms, and keeping tax money out of the stock pot
What Working Capital Actually Is (In Plain English)
Working capital is the cash your business needs parked in the day to day machine before the next payment lands. The textbook definition is current assets minus current liabilities. In practice, for a brand like yours, it comes down to two things: stock you have paid for and not sold yet, and money customers have been charged that has not reached your bank yet. There is a third pot sitting in the same account that is not working capital at all: tax you have collected. VAT payable is a current liability, not spare cash, and for this cash plan we keep it separate from the operating requirement. None of it shows up on your P&L as a cost, and all of it decides whether you can pay yourself.
This is why profit and cash disagree so loudly in ecommerce. A supplement brand buying from China is the opposite of a stockless software business: you pay for the product months before a customer pays you, the platform pays you weeks after the customer does, and HMRC's calendar does not care about any of it. The faster you grow, the more of your own money the machine swallows before it gives any back.
Where a £2m Brand's Cash Actually Sits
Everything below is an illustrative example with synthetic numbers, built to show the arithmetic; run it with your own figures afterwards. The assumptions: £2m of net revenue, so £2.4m of customer takings with VAT included. A landed stock cost of 30% of net revenue, so £600,000 a year. Just over ten weeks of stock cover, which is normal when your lead time from China runs ten to thirteen weeks. And a sales mix of 60% TikTok Shop and 40% your own site on the platform's standard terms.
The first drawer: stock you have paid for. At £600,000 a year, a day of stock costs you about £1,644. At 75 days of cover, that is about £123,000 of cash standing in your warehouse, on the water, and in deposits with your supplier. It does not feel like money, because it feels like inventory. But your cash arrived months ago, and the stock only becomes money again when it sells and settles.
The second drawer: settlements in flight. The moment a customer checks out, the money is on the platform's timetable, not yours. TikTok Shop settles from delivery, and how fast depends on your seller tier: current UK cycles run 31 days for new or probationary shops, 8 days standard, and 3 day and 1 day tiers where shop performance qualifies. A 30 calendar day reserve is possible if you miss TikTok's seller cancellation criteria, a 31 day deferred period applies during security checks, and the bank transfer itself usually takes another three business days. Your own site through Shopify Payments settles in a minimum of three business days, with bank processing on top. If Amazon is part of your mix, allow for longer: a 14 day transfer cycle for available funds, a seven day hold after delivery in front of it, and one to five business days of bank time. Blend all of that across a 60/40 mix and roughly nine days of net revenue is in flight at any moment: about £49,000 of net revenue owed to you, plus roughly £10,000 of output VAT, so about £59,000 of customer cash in total. On the starter cycle instead, the numbers climb to about 22 days and £120,000. The tier alone is worth about £70,000.
The third drawer: tax that was never yours. A standard rated catalogue means output VAT of £400,000 a year arrives with your takings. The VAT you reclaim on platform fees, ads and fulfilment knocks that down, but the illustrative net bill still runs around £80,000 a quarter, leaving one month and seven days after the quarter ends. Until it goes, that money sits in the same account you are funding stock from. It feels like balance. It is not balance.
Lay the three drawers out and the shape is obvious:
| Where the money is | What it actually is | Illustrative size |
|---|---|---|
| Stock you have paid for | Deposits, goods in transit and warehouse stock, at landed cost | £123,000 |
| Settlements in flight | Net revenue from delivered orders not yet in the bank, excluding roughly £10,000 of output VAT | £49,000 |
| Your working capital | The cash the business must carry before it pays you | £172,000 |
| Tax money in the same account | Net VAT collected and not yet due, at quarter end and until payment | up to £80,000 |
Read the bottom two lines together, because that is where the trouble lives. The £172,000 is your money doing its job. The £80,000 above it is not your money at all, and the quarter it gets spent on stock is the quarter the crunch starts.
The Round Trip Money Makes Before It Comes Back
Here is the journey one order makes. You pay a 30% deposit with the order, and the 70% balance before the goods ship, which is convention with Chinese manufacturers, not a rule. Production commonly runs four to six weeks, sea freight another five to six, and clearance about a week more, so plan on ten to thirteen weeks from deposit to sellable stock. Then the stock sells over the following weeks, and each delivery settles on the platform's clock rather than yours. Add it up and you should budget five to six months for an order to fully return its cash. We mapped that timeline date by date, including the two order overlap that catches brands out, in our post on the cash-flow plan for a supplement brand buying stock from China.
At steady state, one or two orders are somewhere in that pipe at any moment, which is where the £123,000 comes from, and it is why the number does not go away when a good month lands.
The Number To Plan With: About £200,000
Add the drawers up and this brand carries about £172,000 of working capital, roughly 8.6% of net revenue. Once you add roughly two weeks of safety stock, about £23,000 at this cost base, and a little room for a slow month, the planning number lands near £200,000. Treat it as the real cost of running a £2m supplement brand.
Two honest footnotes. First, the range matters more than the point estimate: in this illustration, nine weeks of cover with standard settlement terms sits at about 7.6% of revenue, while twelve weeks with starter settlement terms is about 12.9%. Both can be well run. Second, if your bank balance swings between £30,000 and £250,000 across a quarter, that is not chaos, that is working capital doing what working capital does. The average does not matter. The floor is what breaks a growing brand.
The Growth Tax Nobody Budgets For
Here is the part that catches brands in their best year. Working capital scales with revenue, so growth consumes cash before it produces any. Here is what the next steps up look like:
| Net revenue | Working capital carried | Increase |
|---|---|---|
| £2.0m | £172,600 | |
| £2.5m | £215,800 | +£43,200 |
| £3.0m | £258,900 | +£43,100 |
| Rule of thumb | Roughly 8.6p of every revenue pound | About £86,000 per extra £1m |
Read that like a founder: on these assumptions, every extra £1m of revenue permanently absorbs about £86,000 of cash, and it does not ask permission first. It shows up as a bigger stock order, a deeper settlement float and a VAT quarter that keeps getting heavier. A brand growing from £2m to £2.6m should expect roughly £52,000 of that year's cash to stay inside the machine.
That is why profitable brands run out of money: the P&L congratulates you in the same quarter the bank account flinches. The cash has to come from somewhere: profit you deliberately leave in, supplier terms you negotiate, or a facility sized to the cycle. We went through the whole ladder, from supplier terms to stock finance, in our post on how a scaling supplement brand should fund inventory before Q4. What matters here is the size of the gap, because you cannot fund what you cannot measure.
Four Levers That Move The Number
Working capital is not a fixed feature of your industry. It is a set of operating choices, and four of them move the number the most.
1. Move up the settlement tier. This is the fastest lever, and the one founders ignore because tiers feel like a badge rather than a balance sheet item. On this brand's mix, the step from the 31 day starter cycle to the 8 day standard cycle is worth about £70,000 of cash moving out of the platform's pipes and into yours, and the 3 day and 1 day tiers free more again. The tiers reward the boring things: dispatching on time and keeping cancellations and refunds low. Check the current criteria in TikTok's seller materials, then treat your tier like the cash line it is.
2. Right-size your stock cover. At £600,000 of annual stock cost, a week of cover is about £11,500 of cash. The 75 days in this example is a choice, not a law. Trimming it to nine weeks frees about £20,000. Do not cut blindly though: your cover has to cover your lead time plus a demand wobble, and a stockout costs you the customer, not just the sale. The goal is honest cover, reviewed monthly against how stock is actually moving.
3. Win supplier terms. Every month of payment terms you negotiate is worth about £50,000 of working capital at this scale, because it moves a whole month of stock cost to the other side of the pipe. The 30/70 split is a convention, not a law: ask for the balance against the bill of lading instead of before shipment, ask for 30 days after arrival once you are a repeat buyer, and stage payments against production milestones on new lines. One caution: make sure the extra time is not being paid for in the unit price. A higher price is interest by another name.
4. Keep tax money untouchable. The £80,000 that leaves every quarter was never yours. The brands that get hurt are the ones that quietly fund stock with it and scramble when the direct debit lands. Ring-fence it, sweep it into a separate account as it collects, and stop treating the stock pot and the tax pot as the same pot. Two customs levers belong in the same discipline. Postponed VAT accounting keeps import VAT off the border entirely for a registered, fully taxable business, and a duty deferment account moves the duty bill to the 16th of the following month, or the next working day, an average of around 30 days of credit. Both are timing tools, and timing is the whole game here.
Four Numbers To Watch Every Month
You do not need a bigger finance team to manage this. You need four numbers, monthly, in the same place: your stock days in pounds, your money in flight, your net VAT due and its payment date, and the lowest point of your next thirteen weeks. Those four lines turn working capital from a nasty surprise into a managed line, the same way you already manage ad spend.
Put them at the front of your management accounts pack and read them before you read the P&L. Profit tells you what the last period did. These four tell you what next month is about to do. If you are seeing management accounts for the first time and want to know which lines actually matter, our guide to reading your first set of management accounts walks through the ones we check first for brands like yours.
FAQ
How much working capital does a £2m supplement brand need?
About £172,000 in this post's illustrative example: roughly £123,000 of stock at landed cost and about £49,000 of settlements in flight. With sensible safety stock and a slow month of buffer, plan on about £200,000, or 10% of net revenue. Run the same three drawers with your own figures, because your cover and settlement terms will move it.
We are profitable, so why is there never any cash?
Because profit is an accounting view over a chosen period and cash is a timing view. Your money buys stock months before it sells, the platforms pay after delivery on their own cycles, VAT leaves in one quarterly lump, and growth quietly absorbs more cash every month. None of that shows up as a loss. It shows up as a bank account that never quite matches the P&L. Know your floor and plan around it.
How do I free up working capital in a supplement brand?
Work four levers in order of speed: your settlement tier, your stock cover, your supplier terms, and your tax discipline. On the illustrative numbers, moving from the starter tier to the standard tier is worth about £70,000, and trimming stock cover from 75 days to nine weeks frees about £20,000. Then size any facility you use to the stock cycle rather than to the fear, which we covered in our inventory funding post.
The Bottom Line
A £2m supplement brand is not a business that carries £2m of cash. It is a business whose cash lives in three places at once: stock, settlements and the tax calendar, with roughly £172,000 permanently at work and about £200,000 as the honest planning number. That is not a leak, it is the machine. What sinks brands is not the size of the number, it is meeting it for the first time in a bad week, or letting growth quietly raise it while every spare pound goes into ads. Measure the three drawers monthly, move the four levers deliberately, and growth stops being something that happens to your cash flow and becomes something you plan for.
If you want your working capital mapped properly, with your real stock days, your settlement terms and the next thirteen weeks in one view, that is precisely the work we do. We are specialist social commerce accountants for UK ecommerce brands from £1m to £20m, and cash flow planning for stock heavy brands is one of our core services. Book a call and bring your last few months of settlements.