Hi {{first name|there}},

Your P&L just reported a record quarter. Net income up 18%. Gross margin holding.

Now open the balance sheet.

Receivables are up 42%. Inventory is up 37%. Payables barely moved. The cash from your best quarter in years is not in your bank account. It is inside your customers' businesses, sitting on your warehouse shelves, locked in the gap between what you owe suppliers and when you actually pay them.

You financed their operations. At zero percent interest.

This is working capital. It does not appear on your income statement. It does not surface in your EBITDA. And it is the single most common reason profitable companies run out of cash.

In 15 years working with over 400 companies, I watched more businesses hit a cash crisis coming out of their best revenue quarter than their worst. Growth consumes cash through a specific mechanism. Understanding that mechanism — and having the tools to see it 12 to 18 months before it becomes a problem — is what separates the CEOs who stay in control from the ones who find out from the bank.

Here's what we're covering in this issue:

~ 9 minute read

This is Issue 1 of 5 in our June series on The 5 CEO Financial Blind Spots.

A Finance Gem reader asked:

Oana:

Your CFO is not wrong. But he's giving you a partial answer.

Growth does consume cash. It consumes it through a specific mechanism — working capital expansion — not just because revenue is going up. Those are different problems with different solutions.

When a company grows, receivables rise because more customers owe you money. Inventory rises because you need more product to support more sales. Payables can lag, or your suppliers may not offer terms that offset the other two. That gap — between cash out and cash in — is the working capital requirement. And it grows faster than revenue does, especially in the early phases of a growth cycle.

Here is how I would separate the two. Run a quick calculation: current assets minus current liabilities, excluding cash. Then divide by your monthly revenue. If that ratio is expanding quarter over quarter, you have a working capital absorption problem — not just a growth problem. They look identical on a cash flow statement. They do not have the same solution.

Receivables drift is a credit and collections problem. Inventory build is an operations problem. Payables compression is a supplier relationship problem. Each has a different response and a different timeline. Calling it "growth consuming cash" without that breakdown leaves real money on the table.

The real question is not "is growth eating our cash." It is "which component is moving fastest, and what is driving it."

Have a question about your numbers? Reply to this email and you may have your answer featured in the next issue.

CCC = Days Inventory Outstanding + Days Sales Outstanding − Days Payable Outstanding

That number tells you how long each dollar is locked outside your bank account before it comes back as cash.

On a $20M business running a 70-day cycle, roughly $3.8M is permanently committed to working capital at any given moment. Not at risk. Committed. That cash does not sit in your bank account. It sits in your customers' unpaid invoices, your warehouse shelves, and the gap between what you owe suppliers and when you actually pay them.

Change DSO by 30 days. Your cycle goes from 70 to 100. The cost: $1.6M. Not over the next quarter. Immediately. The day DSO drifts is the day the cash leaves.

The businesses that run working capital well track the CCC monthly — against prior periods, against their revenue run rate, knowing what 5-day increments cost at current scale. They manage DSO, DIO, and DPO as levers. Not as outputs.

The businesses that don't track it find out from the bank. That is not a conversation you want to be having from a standing start.

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Receivables. The largest working capital variable in most mid-market businesses. The drivers: credit terms you offer, how fast you invoice after delivery, how aggressively you collect aging balances.

Receivables drift is invisible until it's structural. A customer stretches from net-30 to net-45 without a formal conversation. Finance flags it as a trend to watch. No structural change is made. Six months later, DSO has moved 20 days and nobody approved that decision.

On a $50M business, 20 days of DSO drift is $2.7M of cash trapped in receivables. A call 5 days before the due date, a weekly aging review, a 2% early payment discount for strategic accounts — that discipline pays back a multiple of what it costs to run.

Inventory. Every unit in your warehouse is a unit financed by operating cash. Set the inventory turn target before placing orders, not after the quarter closes.

Fast-growing businesses over-order. The fear of a stockout feels larger than the cost of carrying excess inventory — until you calculate it. One year of excess inventory at 60-day turns instead of 40-day turns on a $30M business is $1.5M of permanently committed working capital. That is a hire. That is a marketing budget. That is equity sitting on a shelf.

Payables. Stretching payables looks like working capital optimization. It usually isn't.

Suppliers price risk into every quote. A 45-day payer is not the same customer as a 30-day payer, regardless of what the invoice says. The discount disappears. Fulfillment priority drops. In a supply-constrained environment, being a slow payer costs more in supply chain exposure than the float saves. The right answer is almost never "pay as slowly as possible." It is "pay on terms that preserve the discount structure and the relationship."

Capital expenditure timing. Large capex creates a working capital shock. Equipment arrives, cash goes out, and the revenue-generating capacity of that investment comes online months later. CEOs who manage this time the purchase to land at the highest-cash point in their operating cycle and arrange financing before the transaction. The ones who don't create self-inflicted crises on otherwise healthy businesses.

Working capital is not a finance problem. It is an operating intelligence problem.

The components may well be understood in theory. Yet almost no mid-market company has built the infrastructure to run them in real time, on their own numbers, against forward scenarios, connected to the capital decisions actually on the table.

Your finance team closes the month. They may produce a DSO report. They may calculate the working capital ratio for the bank package. They may even give you the variance explanation when you ask.

What they almost never do? Model forward working capital absorption under three scenarios before the next board meeting, flag the inflection points where growth starts compressing cash before a covenant conversation becomes necessary, or connect the sensitivity curve to the capital allocation decisions on your desk right now.

That type of work sits one level above the monthly close. Most finance teams (including their CFO or Controller leaders) are built to explain what already happened. But this requires knowing what is about to happen, and running the business with that foresight, not from last month's actuals.

The $35M manufacturer had a CFO. A monthly close. A bank relationship. And none of it surfaced the problem in time because their system was built to report (as is yours most likely), not to anticipate.

That is the gap the CEO Financial Intelligence Academy was designed to close.

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Your enrollment is protected by a 30-day money-back guarantee. If you join, participate, apply the frameworks, and get no value from it, you get your money back.

→ Enroll now at academy.oanalabes.com — Dashboard live in 48 hours. Curriculum, coaching, and community activate the day you sign up.

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Remember, working capital does not announce itself. It just quietly absorbs cash — until the cash is gone.

See you next week.

Oana

Oana Labes, MBA · CPA

Founder & CEO - The CEO Financial Intelligence Academy & Financiario

$500M+ financing · 400+ companies · Top 10 LinkedIn USA · Forbes · LinkedIn Learning