Why Don’t I Have Cash?

Why Don’t I Have Cash?

See Also:
Cash Cycle
Cash Flow Statement
Free Cash Flow
External Sources of Cash

Why Don’t I Have Cash?

I was involved in a meeting with a prospect a few weeks ago who we will call Don. Don owns a manufacturing company which is presently experiencing a growth rate of thirty percent annually. He is showing a profit, but his bank will not increase his line of credit. As a result, Don’s company is having cash flow problems. He told me that he has to extend payments to his suppliers, but they are not happy with him. Don also told me he is unable to call most of his customers for payment, because they are within their credit terms; he feels he would be harassing them. He asked me “Why don’t I have cash?”

Operating Cycle Trap

I told him he was caught in what I call the operating cycle trap. Don looked at me and said “What is that?” I told him his operating cycle is; 1) the time from when he first purchases raw materials, 2) converts the raw materials to a finished product, 3) sells the finished products, 4) converts the accounts receivable to cash. I continued by saying your problem arises when the operating cycle is greater than the credit terms you receive from your suppliers.
The operating cycle problem is increased when your bank, being a historical lender, bases your line of credit on what your company has done in the past, not the opportunities in front of you. They will not increase your line of credit. Finally, your profit margin is not large enough to fund your current growth rate. Don looked at me and said “Is there anything I can do?”

Alternatives to Improve Cash Flow

I said, “Yes, Don you do have some alternatives.” If possible, the way to solve this problem, at no additional cost to the company, is to get your suppliers to give you longer credit terms. Then, give your customers shorter credit terms. This will shorten your operating cycle, and a goal for any business should be to minimize their operating cycle. Don said “I know that will not work because my creditors are asking me to pay faster and the competition within my industry will not allow me to shorten my credit terms to my customers.”
Another way to solve your company’s needs is to consider approaching another bank that may take a more aggressive approach to increasing your line of credit. He then told me that he has been to three different banks. They all said they think they will be able to increase his credit line. The end result has been every bank has either a) they want Don’s business, but the line would be the same as his current line of credit, or b) the increase was so small it really wouldn’t solve his problem. I told him that is what I would expect. Bankers’ underwriting policies for lines of credit are similar.
A third solution would be to get an equity partner. A person or entity would invest the amount of cash to pay the bank off and to fund your projected growth for three to five years. He looked at me and said “The last thing I want is a partner.”
why don't I have cash


The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »


Friend of the firm, Birgit Kamps, recently had Strategic CFO President, Dan Corredor, as a guest on her podcast, CEO Blindspots. CEO BLINDSPOTS HOST: Birgit Kamps. She was speaking five languages by the age of 10, and lived in five countries with her Dutch parents prior to becoming an American citizen. Birgit’s professional experience includes starting

Read More »

SHRM calls ICHRA the 401K for Group Health Benefits

Fed-up with group health insurance? ICHRA is the new way to offer great health benefits and avoid ACA penalties, SHRM calls it the 401K for group health benefits.  In 2020 the Department of Labor, HHS and IRS changed the rules for employer health benefits. They changed the Affordable Care Act mandates and penalties for every

Read More »


Financial Leadership Workshop

MARCH 28TH-31ST 2022



Strategic CFO™ Financial Leadership Workshop
The Art of the CFO®


September 12-15th 2022