Profitable but Cash-Tight: Why Growth Drains Cash
By Mike White, 2-Squared Advisory
If you're profitable on paper but staring at payroll on Friday wondering whether the check will clear, you're not alone — and you're probably not in trouble. You're in the working-capital trap that catches almost every growing $3M–$15M business. The fix is almost never more revenue. It's a 13-week cash forecast, faster collections, and a clear-eyed look at where cash is actually stuck.
Why growth makes the problem worse
Imagine you just landed a $400K project. You staff up, buy materials, and start work this month. You'll bill some of it in 45 days and collect 45 days after that. Your costs hit immediately; your cash arrives 90 days later. Multiply that by every new job, and you can grow yourself into insolvency while every single project is profitable.
The four places cash is actually stuck
1. A/R aging
Most owners look at total A/R. The number that matters is A/R aging buckets: current, 30, 60, 90+. Anything past 60 days is cash you may never see at full value, and every day of average DSO above industry norm is real cash sitting in someone else's bank account.
2. Inventory and WIP
For product and contracting businesses, inventory and work-in-process are the biggest cash sinks. Slow-moving SKUs, over-ordered raw materials, and stalled jobs sitting at 80% complete all consume cash without paying it back.
3. Vendor terms
The single fastest cash-flow lever for most growing businesses is extending vendor terms from net-15 or net-30 to net-45 or net-60. Most vendors will agree if you ask; almost no owner asks.
4. Owner draws and tax payments
Quarterly tax payments and ad-hoc owner draws are routinely missed in cash planning. They're not small, and they show up at the worst possible week.
The 90-day fix
- Week 1: Build a 13-week cash forecast (rolling, weekly). Get honest about timing of receipts and disbursements.
- Week 2: Pull A/R aging. Call every customer in the 60+ bucket. Offer 2/10 net 30 to anyone in the 30 bucket who's habitually late.
- Weeks 3–4: Talk to your top 5 vendors about extending terms. Frame it as growth — "we're scaling and need to align our payment cadence."
- Weeks 5–8: Tighten billing cadence. Invoice on completion, not monthly. Require deposits on new work above a threshold.
- Weeks 9–12: Talk to your bank about a working-capital line — but only once your forecast shows the cycle, not a hole.
What to do this week
Start with the forecast. Even a rough first version — receipts, disbursements, starting and ending bank balance — will tell you more about your business in two hours than your P&L has in two years. You'll see exactly which Friday is the problem and have enough lead time to do something about it.
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Frequently asked questions
If I'm growing, why am I always short on cash?
Because growth consumes cash. Every new dollar of revenue typically requires 15–40 cents of working capital — payroll before billing, inventory before shipping, A/R aging before collection. The faster you grow, the worse it gets, regardless of profitability.
How is profit different from cash?
Profit is an accounting concept; cash is a bank balance. You can be profitable on paper while running out of cash because revenue is recognized before it's collected, costs hit when incurred, and capex shows up over years on the P&L but in one chunk in the bank.
What's the single highest-leverage fix?
A 13-week rolling cash forecast, updated weekly, owned by one person, with a 30-minute review meeting on the same day each week. It's the difference between flying blind and seeing the cliff in time to turn.
Is a line of credit the answer?
Usually part of the answer — but only after you understand the working-capital cycle. A line of credit covers a timing gap; it doesn't fix a structural problem. Borrow to fund growth, not to fund losses.