These are the patterns I see repeatedly across 56 entities and 18 countries. A business can be profitable on paper and still run out of cash. Here are the 7 ways it happens.
A business can show profit on the P&L and still have negative cash flow. Revenue recognised on accrual is not cash in the bank. The gap is where most cash crises start.
DSO + Inventory Days – Creditor Days = Cash Conversion Cycle. If this is growing, your working capital is expanding faster than your revenue. In agencies, a 45+ day cash cycle means you need 6 weeks of payroll before you see a cent of client revenue.
When one client passes 25% of revenue, you are one renegotiation away from a cash crisis. At 40%, you do not have a business — you have a contract. I have seen this destroy agencies overnight.
Every day of excess inventory or unbilled WIP is cash you have already spent. Manufacturing inventory above 90 days, agency WIP above 30 days — both are cash traps disguised as operational metrics.
Extending creditor days is borrowing from suppliers at zero interest — until they stop supplying. In manufacturing, one supplier cut-off can stop production. In agri-trading, missing a farmer payment means you lose the relationship for the year.
Growth consumes cash. Every new client, every new hire, every new project has a cash investment before it produces returns. If your growth is funded by your working capital, you will eventually hit a wall.
A 13-week cash forecast is the single most valuable financial tool for any business under $50M. It tells you exactly when cash gets tight — and gives you time to do something about it. Most businesses don't have one. The ones that do rarely have a cash crisis.
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