Working Capital
How can growing faster leave you with less money?
The idea
Receivables, inventory, and payables determine cash tied in operations.
In the real world
Growth can consume cash when customers pay late.
Going deeper
Working capital is the cash locked inside the operating cycle: stock you have paid for and not sold, invoices you have raised and not collected, less what you owe suppliers and have not paid.
Growth increases it almost mechanically. Each new order requires stock and supplier payments now against customer payment later, so the faster you grow, the larger the sum being financed out of the business. This produces the counterintuitive result that a rapidly growing, profitable company can run out of money, and the levers that fix it — faster collection, longer supplier terms, less stock — are operational rather than financial.
Where it stops applying
Some models have negative working capital by design, taking payment before incurring cost. Subscriptions billed annually in advance are funded by customers rather than by the business.
Why it matters
It explains the cash squeeze that arrives precisely when things are going well.
Try this today
List your largest timing gap.
Test yourself
Orders double. The company pays suppliers in thirty days and collects from customers in seventy-five. What happens to cash as it grows?
Show the answer
It drains. Each new order funds inventory and supplier payments long before the customer pays, so the faster the growth the larger the gap being financed out of the business's own pocket.
Learn this in the feed Answering from memory, then again days later, is what makes it stick.