Cash Flow
Why profitable companies run out of cash
The problem
Owners are told they have a cash flow problem. That is a symptom. The cause is usually one of five specific things, and each has a different fix.
Why it matters
Treating the wrong cause is expensive. Cutting expenses will not fix a collection problem, and borrowing will not fix a margin problem — it will only fund it for a while.
How to know if you have this
- Cash tightens as revenue grows
- Receivables age faster than you can collect them
- Inventory or work-in-progress keeps rising
- Debt service consumes a growing share of operating cash
How Advisory Motion solves it
- 01Decompose the cash change into growth, margin, working capital, financing and owner draws
- 02Quantify each cause so the largest one gets addressed first
- 03Build the specific fix — collection discipline, pricing, inventory policy or debt restructuring
- 04Re-measure monthly so improvement is proven rather than assumed
Illustrative example
Growth was the problem
A distributor added 28% revenue and lost $310K of cash. The decomposition showed 80% of it went into inventory and receivables for new accounts. The answer was a working-capital plan and stricter terms on new customers — not a cost-cutting exercise.
Illustrative composite · not a client identification
Where this connects