Why does cash tighten when it feels like the business is working well and nothing dramatic has happened?
The founders I work with know where to look operationally in their business when things are not right. Cash, and what is caught up in working capital, can be the area that gives misleading signals.
Founders and CEO’s of growing businesses ask the cash tightening question even though they know:
- sales are being made as planned
- invoices have been sent on time
- their teams are busy
It feels like a good month, but the bank balance is not reflecting that. The reconciliation in the head then starts:
- a few clients haven’t paid yet
- it’s a timing thing
- payroll came at the wrong time
- next month will look better when we catch up
All of these are probably right. They just don’t explain the feeling of things not lining up as they should.
Most founders never find out. There is no way to know whether what you are experiencing is normal for a business at your stage, or whether it is trying to tell you something.
The tricky part to this is that founders have already moved on. They are head down and into the next month:
- making decisions for the business
- looking through accounts receivable for invoices to chase
- assuming things will catch up
The learning is always that when you are growing a business, decisions don’t wait for clarity. The uncertainty that is created can lead to:
- holding off on a hire
- delaying spend
- pushing a bit harder on collections
Nothing major, just small adjustments based on how cash feels.
Part of the problem is timing. When the end of month numbers are finished, the new month is underway and decisions are being made. Which means trying to interpret the outcome, instead of seeing it ahead of time.
Every now and then though, the opposite happens. It is an average month, but cash jumps. Suddenly, things feel easier, decisions are clearer and the pressure lifts.
Founders feel better, you can see their confidence lift. At the same time, they ask why does cash behave like this?
The truth is, when you are growing the business, this pattern keeps repeating and that’s where it gets interesting.
