There is a saying in finance: 'Revenue is vanity, profit is sanity, but cash is king.' Too many CEOs obsess over the P&L statement while ignoring the Cash Flow statement. They celebrate a record quart
There is a saying in finance: 'Revenue is vanity, profit is sanity, but cash is king.' Too many CEOs obsess over the P&L statement while ignoring the Cash Flow statement. They celebrate a record quarter of sales, only to realize they can't make payroll next week because that revenue is tied up in accounts receivable.
Growth Eats Cash
The faster you grow, the more cash you burn. Inventory needs to be bought, staff needs to be hired, and marketing needs to be paid for—usually long before the customer pays you. This is the 'Growth Trap.' A company can grow itself into bankruptcy while being perfectly profitable on paper.
The Metric That Matters: CCC
Smart executives obsess over the Cash Conversion Cycle (CCC). How many days does it take for a dollar invested in the business to return as a dollar (plus profit) in the bank?
If your CCC is growing, your business is bleeding, no matter what the EBITDA says.
Don't just manage for profit. Manage for liquidity. You can recover from a loss. You cannot recover from running out of money.
