Why Growing Businesses Suddenly Run Out of Cash
- ProfitWise
- 9 hours ago
- 2 min read
By ProfitWise - a Visa Business Plans company
The call usually starts with some version of this:
“Business is great. I just don’t understand where the money went.”
The company isn’t struggling. In fact, it’s doing exactly what most business owners want it to do. Sales are growing, new customers are coming in, and the owner is hiring because the existing team can’t keep up.
Yet every month, cash seems tighter.
It sounds contradictory until you look at what growth actually costs.
Imagine a company lands two large new clients. That’s great news, but the owner needs another employee to handle the work. Payroll starts immediately, while the new clients won’t pay their invoices for another 30 or 45 days.
Meanwhile, the company needs more supplies to complete the additional work. Those have to be purchased now. Maybe there’s also a new computer, additional software, or another vehicle involved.
Suddenly, the business is spending money today to support revenue it won’t collect until later.
As the company continues to grow, that gap can keep getting bigger.
This is where owners sometimes get confused because their profit and loss statement may look perfectly healthy. The company can be profitable on paper while the bank account keeps getting smaller.
We’ve had conversations with owners who couldn’t understand how that was possible. Once we started following the cash, however, the answer became much clearer. Money was tied up in unpaid customer invoices, inventory, equipment, loan payments or the everyday costs of supporting a larger operation.
Growth had created a need for more cash before it created more cash.
That’s why growing companies need to pay attention to more than revenue and profit.
At ProfitWise, part of our work with clients is looking ahead. We review what’s happening now, but we also help owners anticipate what their decisions may do to cash over the next several months. We look at the cash cycle.
If you’re planning to hire three people, open another location or take on a large contract, you should have some idea of what that decision will require financially before you commit to it.
Sometimes the numbers show that the business can comfortably handle the growth. Other times they tell you that you may need to slow down, arrange financing, improve collections or build a larger cash reserve first.
That’s a much better conversation to have before the bank balance starts getting uncomfortable.
Growth is usually something to celebrate. It means customers want what you’re selling and the business is moving forward.
You just need enough cash to keep up with it.
