The Finance Gem 💎 #104: How Budgets aren't Strategy and EBITDA isn't Cash

Hi there,

Quick question: If your bank refused to increase your credit line tomorrow, would you survive?

Don't answer too quickly. A distributor with over $52 million in annual revenues I worked with would have said 'yes'—right up until it actually happened.

The CEO had told me straight up: "I don't have time for budgets. I'm busy growing my business."

What happened next is a case study in how the wrong financial focus leaves leaders blind to risks that are already in motion.

But before I share what happened to them, a reminder:

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If you’re still using EBITDA as your go-to performance metric, you might be missing what really matters: operating cash flow.

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Now, back to that distributor...

Twelve months later:

• Their bank refused to increase their $9 million line of credit

• They were overstocked on inventory, and cash was evaporating

• When the bank asked for a forecast, they didn't have one

• They became a "special account" client (that's bank-speak for serious trouble)

• They spent $360,000+ in professional fees over the course of 3 years to comply with the bank’s increasing reporting requirements

Here's what they had not seen coming:

They had built a business model entirely reliant on working capital from outside. But they had no budget to define – and defend – how much they needed, when, and why. Or how they would pay it all back.

And here’s the strategic distinction too many leaders miss: a budget is not a forecast, and neither replaces a strategic model.

• Budget = your short-term, tactical operating plan for the year.

• Rolling forecast = your continuously updated, 60-month view of revenue, cost, capital needs, and liquidity — integrating actual results to keep you on your long-term track.

• 5-year model = the strategic map. It defines the track itself, aligning capital and cash cycles to the outcomes you’ve committed to deliver.

In high-performing companies, the sequence looks like this:

1. Build the 5-year three-statement model tied to strategy.

2. Break it into an annual budget for Year 1.

3. Merge actual results with budget for a current-year rolling forecast.

4. Roll your forecast to keep the next 5 years updated continuously.

The sample chart below shows exactly how those pieces connect — and why relying on a 12-month budget alone leaves 5+ years of your company’s capital and infrastructure planning unaddressed.

The distributor in our story had no forecast to show if — and when — profits would convert to cash. And they had no finger on the pulse of the widening gap between their EBITDA and actual operating cash flow.

What I realized watching this unfold was that companies need more than compelling stories.

They need tangible financial models that show themselves — and everyone else — exactly how they'll navigate challenges and convert profits into actual cash.

Without that forward visibility into capital needs and cash cycles, without a way to connect their financial planning to their long-term strategy, they're operating without any real control while telling themselves everything is fine because revenue is growing.

In this case, what looked like impressive growth was actually a dangerous acceleration toward financial distress, with nobody monitoring the warning signs that were already flashing in their working capital cycles and covenant calculations.

So here's my question for you:

Are you going to build the financial intelligence to see these problems coming? Or are you going to wait for an event — a boardroom meeting, a missed target, or worse, a breached covenant — to take action?

Because here's what the research shows:

The #1 reason CEOs get fired isn't misconduct. It's not scandals. It's not boardroom clashes.

It's poor financial results tied to strategic missteps.

If a CEO ranks in the bottom 20% of company performance, there's roughly a 60% chance they'll be dismissed in the first five years. The average compensation drop is 40%.

Boards make decisions based on performance.

That's why I've built a two step approach to help you implement strategic financial intelligence:

Step 1: Upgrade your own strategic financial leadership skills with The CEO Financial Intelligence Program

Over the course of 6 short weeks, you'll master 20% of financial insights that drive 80% of value creation. We cover capital allocation, cash flow forecasting, risk management, debt optimization, and value engineering. All translated for executive decision-making.

The next cohort starts on August 27th. Apply here. 

Step 2: Upgrade your company’s strategic financial infrastructure with Financiario

This is the only strategic finance system that gives CEOs CFO-level planning, forecasting, and insight without the overhead, the risk, the delays - and without the price tag. In just 7 days, you'll have real-time visibility into debt covenant compliance, borrowing capacity, cash conversion cycles, and capital efficiency, with intelligent dashboards that update automatically and 60-month forecasts across all three financial statements.

Book your demo here.

Companies that thrive have one thing in common: visibility into their financial future so they can anticipate, prepare, overcome and achieve.

That $52M distributor had competent leadership. But they operated with month-to-month spreadsheets in a world that required 60-month foresight.

Growth often becomes the excuse for poor financial planning. But when you finally "have time" for budgets, it might already be too late.

Stay ahead,

Oana

P.S. I've seen this pattern with hundreds of companies over 15 years. The ones who invest in financial intelligence early never face these crises. The choice is yours.