Why cash crunches are hard to see

Cash is the lifeblood of every organization.

It allows founders to hire talent, buy equipment, and rent facilities.

The challenges that arise from cash flow management are not always clear. Is it that the business is over-spending or that it is not selling enough? Or is it both?

Low cash balances break companies, but this is easy to see. Companies run on cash. No cash, no company.

Paradoxically, high cash balances can break companies too. Well-funded companies can decide that there’s enough cash to get the premium version of everything: their reserves can absorb inefficiency. Until… milestones are due, spend is high, and reserves are low.

Companies that are growing can see a sudden jump in their spend rate. Unexpected spend hikes that are not properly controlled drive cash gaps (i.e., working capital gaps). This is because there’s a lag between the moment spending increases and the moment money is effectively collected from clients.

Irregular and uncertain revenue streams can also challenge founders in the way they plan cash flows, spend, and growth. A slight delay in a critical receipt can break the continuity of a business -partially or completely. Unstable cash inflows make the future blurry.

Running a business without financial expertise is a sure-fire strategy to have a stressed organization. Cash is your gas and if your taking a journey with a bad driver, you’ll end up in a different journey… with a bad driver.

Expectations can wreak havoc on cash flow. Over-optimistic sales expectations can drive production to build inventory, but if this inventory sells slower than expected, the speed at which money comes in will not be paired with the speed it went out.  

Cash crunches are hard to see.

But that doesn’t mean you can’t be prepared.

Stay lean. Be disciplined. Close the gaps.

If you or your organization are having issues managing cash, setting up the right controls, and overseeing the finance function, feel free to reach out to us at contact@summa.consulting to learn about the ways we can help you.