Why Revenue Growth Creates Cash Flow Problems

Growth doesn’t always strengthen a business. Sometimes it exposes hidden constraints that were always there.

Revenue Is Not Cash

At first, the issue looked like a cash flow problem. Profit on paper, but not cash in the bank.

Payables is buried.

Receivables is making calls but…

Is Accounting losing the game?

Sales is a rockstar. New customers love the product.

So where to point the finger?

Stop Looking for Someone to blame

Most businesses don’t solve cash flow problems because they start with the wrong diagnosis.

If growing revenue isn’t producing more Cash, start with trends.

• What is actually selling?
• Which products have gross margin less than 35%?
• Is that trend getting worse or better?
• Where is labor time really being spent?
• Which customers are buying more – and why?

When the same complaint keeps resurfacing, you’re probably tracking symptoms rather than the system creating them. Use questions instead of fact finding.

Gross Margin is a problem worth fixing

Are you capturing all the related cost of sales with accurate categorization for materials and where labor time is spent?

You would know if time sheets tracked what people were working on throughout the day.

If you don’t have that data, there is a problem worth fixing

Can’t track gross margin without clarity on labor by product, service and offering.

What about target markets?

Follow the System, Not the Symptoms

Know the problem each niche market is trying to solve and whether this problem will continue in the future.

And then find out if your solution solves some or all of that problem. What happens if your offering is not available to them when they need it in the way they need it?

Where Hidden Leverage Appears

The lesson: When revenue is growing but cash is not, the issue may not be sales. The leverage point may be how the the contributing factors may not show up in the way you are tracking your data. The right perspective becomes possible when you ask key questions up and down the value chain.

There is gold hiding when you listen to the answers.

The deeper leverage point might be your value proposition, market focus, and business development messaging discipline.

We bring the management team together to ask these questions, find the data and discover where the gaps are.

What We Learned

One client needed to translate technical capability into buyer language, identify the markets most likely to care, and create a repeatable way to educate prospects for companies already in their customer base with mission critical problems no one knew existed.

Until someone asked a technician who had been in the plant, know one knew what happened when the client didn’t have the company’s solutions on hand.

Then the team connected the dots and opened up a new division with 15% more gross margin. No more cash flow problems.

Read the Cash Flow Problem Case Study here

Once the company clarified who valued the solution most and how to explain the business problem it solved, growth became easier to pursue. The team moved beyond relying on RFPs and began building visibility in the right markets.

Revenue grew from $11M to $18M, and the company became more visible among their ideal target customer in Canada and the United States.

The lesson: Revenue growth doesn’t create cash.

Better decisions do.

When leaders stop asking “Who’s responsible?” and start asking “What changed?”, hidden leverage begins to appear.