Direct Answer
Revenue growth does not automatically convert into operating cash. In fact, rapid revenue expansion frequently consumes more cash than it produces because of the cash conversion cycle.
When sales increase, a business must fund inventory purchases, pay wages, and incur delivery expenses immediately, while customers may take 60 to 90 days or longer to pay. If working capital requirements expand faster than operating profits, bank balances decline even as the top line surges.
Additionally, rapid growth often masks declining gross margins, customer payment delays, and uncontrolled overhead expansion.
Why This Matters for Sponsors and Leaders
Many growing and profitable businesses face insolvency not because they lack demand, but because they run out of liquidity while waiting for receivables to settle.
What to Examine
Track Days Sales Outstanding (DSO), Days Inventory Outstanding (DIO), and Days Payable Outstanding (DPO).
Review whether rapid growth is coming from large accounts that demand punitive payment credit periods.
Ensure money is not trapped in slow-moving stock ordered in anticipation of unconfirmed demand.
Reconcile reported EBITDA with actual cash generated from operations on a monthly basis.
Practical Leadership Insight
Do not celebrate an invoice; celebrate a collection. A sale is merely an unfinished promise until the cash clears your bank account.
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