Working Capital, Quietly
Profitable on paper, cash-starved in operations. What closed the gap wasn't revenue. It was a forty-day swing in working capital nobody had been managing.
The company was profitable on paper. So why had the bank balance fallen six months running? The quarterly P&L showed a comfortable operating margin. The CFO called it a working capital problem. The CEO didn't know what that meant in operational terms.
It meant this. The company earned revenue but collected it slowly. It paid vendors quickly, because the office manager had never thought about payment terms. It held inventory longer than needed, because the warehouse manager defined success as never running out. DSO was seventy-eight. DPO was twenty-six. Inventory days were fifty-five. The aggregate cash cycle ran a hundred and seven days.
At that company, every dollar of revenue had to be funded for 107 days before it returned to the bank, and a forty-day improvement, a manageable target, would have freed close to $1M. On $9M of revenue, that 107-day cycle trapped roughly $2.6M in their working capital. Six months of runway, pulled out of operations they were already running.
Most small companies don't manage working capital because it doesn't show up on the P&L. The income statement books revenue when earned and expenses when incurred. The bank balance moves when cash lands. The gap between the two is working capital, and that gap decides whether a company has to raise or not.
The three levers each have their own shape. Days sales outstanding responds to collections discipline: a named owner, weekly aging reviews, dunning sequences. Days payable outstanding responds to deliberately negotiated terms: net 30 by default, net 45 or 60 for larger vendors. Inventory days respond to demand forecasting and SKU discipline, since most companies overstock slow movers because the warehouse manager is graded on stockouts rather than trapped cash.
The move is the same in all three. Name the owner. Set the target. Review monthly against it. The targets come in over six to twelve months, and the cash freed can exceed what a fundraise produces, with no dilution.
Working capital is the quietest cash a company holds. The discipline to manage it actively is one of the rarest things a small company ever builds.