Profitable and Broke

Growth creates value. Cash determines whether you survive long enough to realise it.

The gap

A £40M business shows 15% net margin. Six months later it’s scrambling for credit.

The board is confused. Revenue grew. Margins held. Where did the cash go?

Profit isn’t cash. Growth widens the gap.

Working capital consumes growth

Every pound of revenue needs working capital before you collect. You bill customers in arrears, pay staff fortnightly, suppliers want payment in thirty days. The faster you grow, the more cash you consume before you see it back.

The mechanics are straightforward but invisible on a P&L.

A SaaS business invoicing annually in advance holds cash for twelve months whilst delivering the service. Growth improves cash position.

A services business invoicing thirty days after delivery, with collections drifting to sixty. Growth drains cash. Same revenue line, completely different cash reality.

The balance sheet tells the story

Days Sales Outstanding: how long cash is locked in receivables.

Cash conversion cycle: time from when you pay out to when customers pay you.

Most operators quote revenue within a percent. Fewer know their cash conversion cycle within fifteen days.

The gap lives in the balance sheet, not the income statement.

Collections discipline

DSO creeping from 35 to 50 days feels gradual. On a £50M revenue base that’s £2M locked up.

Good finance teams track DSO weekly. Treat collections as operations, not accounting. Poor ones discover the problem when the overdraft maxes out.

Billing terms compound faster than most realise. Moving from quarterly in arrears to monthly in advance doesn’t just smooth cash flow—it transforms growth capacity. You can grow faster on the same capital base.

The decision sales made three years ago (“whatever closes the deal”) constrains growth today.

The fix

Calculate your cash conversion cycle. Above forty-five days and growing fast? You’re building a constraint.

Track DSO weekly, not monthly. Shift new contracts to upfront payment where feasible. Renegotiate terms on large renewals before they auto-renew.

Pull your balance sheet. Calculate DSO and cash conversion cycle. If you don’t know these numbers off the top of your head, that’s the first problem.

If DSO trends up month-on-month, collections discipline is broken. If you’re billing in arrears and competitors aren’t, you’re financing customer growth with your capital.

Good operators know the difference between profit and cash.

Related: From Data to Information · Third Lever · Reading Guide