We have a cashflow problem.

I’ve heard these exact words hundreds of times from owners and leaders. It’s usually mentioned in the first phone call, and it is almost always said with a particular kind of pressure behind it, because the money is short now, this week, and the worry is real.

Describing their immediate issue, cashflow is the word owners and leaders use more than any other, and I’ve figured out why.

The cash is genuinely tight. The stress and worry are too.

And the money running short is the thing you can see, measure and know for certain.

However, cashflow is almost never what is actually producing the shortage.

It is almost never the real problem.

Across the enterprises I’ve worked with, the cashflow shortage almost always traces back to something else. The best work is not managing the cash, it is working out which of the causes is yours, because the right move is different for each one.

Solve the immediate pressure while looking deeper.

The immediate pressure needs to be fixed.

Conventional wisdom says to chase the cashflow itself, tighten it, forecast it, refinance it, and manage it. That is sound and there are plenty of cashflow templates, cashflow forecasting and cashflow finance options available.

However, the relief usually lasts a while and then the pressure comes back, because the real problem was somewhere else the whole time.

While preparing a cashflow forecast, the key is to identify the immediate needs and the best solution based on the real cause. Solving for the wrong cause is the “right answer to the wrong question”.

When growth is being paid for out of the working capital.

This is the one that catches good enterprises, because it does not look like a problem until the cash runs out. Something bigger than before gets taken on, a larger project, a new site, a step up in scale, and the growth is funded quietly out of the money needed to run day to day. Nothing has gone wrong in the accounts. The work is being won. The working capital is simply being spent faster than the work can pay it back.

The tell is that the shortage arrives alongside the growth, not against a downturn. Turnover is up, the order book looks healthy, and the cash is tighter than it has ever been. That combination is the signature.

It shows up in two forms, and it is worth being able to tell them apart.

The first is the stretch. An enterprise reaches for something beyond what it currently has the capability to deliver, and the reach goes wrong.

I worked with an engineering business that took on a project larger than anything it had done before, and larger than it could deliver cleanly at that point. The project overran, the overrun became a heavy loss, and the loss consumed the buffer the business had been running on. By the time it reached me the owner was hand to mouth paying wages and building a debt to the tax office the size of an average mortgage. The immediate work was survival, a refinance and recapitalisation to stop the bleeding, and the real work was the pivot back to what the business could do well. It recovered, and over the years that followed it grew profit year on year. But the cash crisis was never really the problem. It was the visible edge of a growth decision the business did not have the resources or the capability to carry, and nobody caught the gap before it was almost too late.

The second form is quieter, and more common, because here the growth is going right. A healthy enterprise winning more work than it has ever won, growing steadily, doing nothing wrong, and steadily starving of cash the whole way up. Every new job has to be paid for before it pays out, so the faster it grows, the more of its own money it ties up in front of itself. There is no crisis and no bad decision to point at. The business is succeeding itself into a shortage, and being told it has a cashflow problem when what it has is growth outrunning the capital available to fund it.

Both forms share a cause that sits underneath the cash.

A strategy to grow that was never properly matched to the financial resources to carry it, and no one at the centre with the capability, at the time, to catch the mismatch before it was executed.

That is not a cashflow problem. It is strategy, finance and capability out of alignment, and the cash shortage is what it looks like.

When the cash is short and the business is growing, the cause is usually upstream of the money entirely.

When the margin has quietly gone.

Sometimes the cash is short for the plainest reason of all. The work is not making enough on each transaction to fund the next one, and it has been moving that way for long enough to drain the reserves.

Margin rarely collapses in one move. It erodes. Costs lift a little each year and the prices do not, a discount offered to win one client becomes the standard, an input that used to be cheap is not anymore, and none of it is dramatic enough on its own to force a response.

Then a season comes where the cash does not cover the commitments, and it reads as a cashflow problem when it is really a pricing and cost problem that has been building for years.

The tell here is effort without reward.

The business is as busy as it has ever been, everyone is working hard, the turnover looks fine, and there is nothing left at the end of it. When the volume is high and the cash is still short, the number to look at is the margin, not the bank balance.

Managing the cashflow harder will not fix a repeating transaction that was underpriced before it started.

When the money is earned but not yet in the bank.

This one is pure timing, and unlike the growth squeeze, it happens to businesses that are not growing at all.

A steady, mature enterprise, profitable and well run, can still be short of cash if the money is trapped in the gap between paying for the work and being paid for it. Debtors drift out from thirty days to sixty to ninety, stock sits longer than it should, and the business ends up funding its customers and its shelves out of its own pocket. Nothing is growing and nothing is wrong with the margin. The money has been earned. It just has not arrived.

The tell is a profitable set of books sitting next to an empty account. If the business is genuinely making money and the cash still is not there, the answer is usually caught in the debtors, the stock, or the terms. That is a different fix from cutting costs or chasing more sales. It is tightening the timing, so the money already earned actually turns up.

When the borrowing does not match what it bought.

Debt causes a cash shortage less often through its size than through its shape. A loan structured over too short a term, or a facility whose repayments do not line up with the activity it funded, will squeeze the cash even when the underlying business is sound.

There is a particular version of this that is worth naming, because the instinct behind it feels so responsible. Debt feels like a weight, so owners try to clear it fast, directing extra money at the loan and trimming whatever looks discretionary to find it.

I have told the full version of that in “The right answer to the wrong question”, where a hospitality business paid its debt down faster by starving the marketing and training that were its actual revenue engine, and lost far more than the interest it saved.

The point that belongs here is the tell.

When the business is sound, but the repayments do not fit, the fix is the structure of the borrowing, not another round of belt-tightening. Paying good debt down too aggressively can starve the very thing that would have cleared it.

When a decision is being paid for by not making it.

The last one is the quietest, and it hides the best, because there is nothing in the accounts to point at. A decision that needs making is not being made, and the cost of leaving it open is being paid, week after week, in cash.

It might be a client who is no longer worth serving, a role that should have changed a year ago, a line of the business that has stopped earning its keep, or a hard conversation between partners that keeps getting deferred. None of it shows up as a line item. It shows up as a slow, unexplained leak that no amount of cashflow management seems to seal, because the thing draining the cash is a decision sitting open, not a number sitting wrong.

The tell is a shortage nobody can quite account for, sitting next to a decision everyone has been avoiding. If the cash is leaking and the books cannot explain it, the cause may not be in the books at all.

When the money already exists but something else isn’t.

A charity doing genuinely good work on the ground came under acute cash pressure when its funding was withheld. On the surface it looked like the plainest cashflow crisis there is. The money that kept the doors open had stopped arriving.

The money had not gone anywhere. It was being held back because acquittals had been missed and the reporting that funding depends on lacked the detail it needed. The real problem sat with the people carrying the work. The frontline was made up of volunteers who were genuine, who cared deeply about the people they served, and who did not have the skills or the knowledge of what the funding body required to be captured and reported. Above them, the chief executive was spread far too thin, with no accountability framework to lean on, because the organisation had grown up on volunteers who had never much liked being held to account.

The immediate work was the acquittal itself, getting an interim plan in front of the funding body and clearing the block. But the fix that held was the one built around the people rather than against them.

We tightened the reporting by sharing the wins. Each month the frontline volunteers’ work was gathered up and told as a story of what they had done and who they had helped, and it went into an internal newsletter that celebrated them by name.

The volunteers loved it, because it recognised them and the work they cared about. And in the telling of it, the very data the acquittals needed, the activity and the outcomes, was being collected as a matter of course. The chief executive no longer had to chase the frontline for information they found tedious. The job narrowed to managing the admin team, making sure the information flowed from the frontline into the office and out through the newsletter.
The funding body accepted the interim plan and renewed the funding with tighter reporting attached, and the reporting now had the outcome detail and the deadlines it had been missing. From that footing the organisation went on to secure further funding and expand what it did. Over three years the people it helped grew from around three hundred a year to more than a thousand.

The cash crisis was never really about cash. The money existed. What was missing was the capability to report the outcomes that released it, and the fix was to build that capability into the work in a way the people doing it actually welcomed.

The cash is the signal, not the problem.

A cash shortage is information. It is telling you that something upstream is out of balance, and it is worth reading rather than simply managing.

The move is not to get better at managing the cashflow. It is to work out which of these causes is actually yours, because growth funded out of working capital, a margin that has quietly gone, money trapped in the timing, borrowing that does not fit, a decision left open, and a report that has not been filed are six different problems that all arrive at the bank account looking identical.

Manage the cash and the relief is temporary.

Find the cause and fix it, and the cashflow tends to look after itself.

Finding which one it is, is where the work I do begins.