Where's My Cash?!?!
Why growth is making you feel cash-poor and anxiety-rich.
What he just said made no sense.
“I’ve seen more companies go out of business when things are booming than when things slow down.”
What? Why?
“They run out of cash when they start to get busy...”
This conversation, circa 2005, took all of 20 seconds. It’s stuck with me since.
Fast forward 20+ years, and I’m living this out with Trinity Builder Solutions (TBS).
TBS is booming. Contracts are flowing in (once I stopped focusing on systems...), billings are flowing out, our buildings are piled high with raw slabs and pallets of tile, and we’re adding new team members and vehicles every week. I mean, this is an entrepreneur’s dream, right?
It is. Yes. I wouldn’t trade it for the world.
It’s also sucking up cash as fast as we can generate it. And then some.
Alas, this is not uncommon because cash flow in a business is an often-neglected metric.
The Cashflow Statement is the third wheel on a date with the P&L and Balance Sheet. And while the P&L does tell you how much cash you have to work with before debt is serviced and taxes are set aside, and while the balance sheet does show you the actual cash on hand, it’s the Cashflow Statement and Cashflow Forecast that explain why you’re revenue-heavy and cash-light.
So, what are these mysterious “Cashflow Forces” that are causing you to be both booming and hemorrhaging? Here’s what’s at work.
Force 1: Operating Profit Goes Down
The first domino to fall as you ramp up is a likely reduction in net profitability.
As growth approaches, you start to prepare.
You see the work coming down the pipeline, you sign the big contract, you might even be moving into a bigger space to accommodate the expected growth.
You start recruiting, hiring, and preparing for a larger team. You secure additional vehicles and equipment. You are in “growth mode,” dammit!
You tell all your business-owner friends. Who doesn’t like to brag about being in “growth mode?” They look at you and smile. “Ah, ‘growth mode,’” they think. Good for them...
These things are exciting and often necessary.
They are also “investments” you make in the form of an increase in operating expenses, often without (yet) the matching increase in revenue.
So, the months leading up to growth, revenue is the same and expenses are up. This means profit is down. And profit (or loss) is the first thing that affects your cashflow. If you are not making a profit, you do not have “dry powder” to use to fund growth.
Force 2: Inventory Goes Up
The next domino to fall is an increase in inventory.
Now, perhaps you have a business that requires little to no inventory. In this case, this “Cashflow Force” does not apply.
But for the many business types that have to “buy stuff” before they can “do stuff,” I want you to think of it like this: every bit of material sitting in your building, on your property or even at the customer’s location that is not yet installed is no different than a suitcase of cash just sitting there on the ground.
That’s how I try to think of it. When I go into our warehouse, I try to imagine cash just sitting there, unable to be used, in danger of getting damaged, perhaps even susceptible to walking away should some unscrupulous soul come across it.
Inventory takes cash. Then it just sits there. This is partly why you feel like your cash is disappearing.
Force 3: Accounts Receivable Goes Up
OK, so you have your team built, you’ve bought your equipment and vehicles, you’ve purchased your materials, and you’re actually doing the work! Yes!
And you’ve even billed for the work. You’ve sent big, hairy, aggressive billings to your customers. The work is done, now it’s time to get paid!
Then you wait. And wait. You feel like a bank. Ever heard of “other people’s money?” You are the “other people’s money.”
This is called Accounts Receivable, or A/R. And it’s a company killer.
Here’s how it works: The change in your A/R balance from one day to another is literally cash you no longer can use in that same period (less your net profit margin).
An example:
A/R balance on 1/1/26 is $100,000.
A/R balance on 1/31/26 is $300,000.
You just lost ~$200,000 of cash in one month. Congratulations! (Yes, I know, that is only if you’re running at a break-even profit margin. But even if you’re at 10% profit, that’s still a loss of $180,000 of cash in a month, so let’s stop splitting hairs...)
This is why A/R is so dangerous: when you send invoices out, you feel great. And if you’re on accrual accounting (which almost any business of size should be), these unpaid invoices even show up as earned revenue. So your P&L tells you you’re doing great!
But that revenue is useless from a cash perspective until you collect. Ugh. That’s not always easy...
Force 4: Accounts Payable Likely Stays Flat
The last Cashflow Force to consider before and during growth is Accounts Payable, or A/P.
A/P are the bills you’ve gotten from others that you owe them. It’s “other people’s money.”
OK, so the logical thing to do in a time of growth, especially since other people are using your money (A/R) is for you to use other people’s money (A/P). Right?
Well, you can to a certain extent, but it’s more common for A/P to only grow a fraction of A/R. And the reason is, if you start slow-paying or non-paying vendors, bad things happen: they stop selling to you, they stop negotiating with you, they stop offering you discounts, they stop providing services, and they turn off your utilities. You know, things like that.
So it’s likely your A/P “turn” stays pretty flat, but your gross A/P goes up. You’re buying more stuff. And you have to pay for it according to the terms of your agreement.
This means more “gross cash” is leaving your business more often.
Wrap Up
Let me be clear: these are good problems to have, but problems nonetheless.
And they’re problems that must be dealt with.
So, how do we solve them? Here’s the follow-up newsletter with the answers, my friends.
But in the meantime, if you need to chat about this stuff, shoot me an email. I’d love to help. scott@scottmonday.com
My sister and I launched a podcast for sub-$20M business owners and operators. Episode 10, the season finale, is out!
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