Talking About Cash Liquidity Challenges Again

There are few things more revealing in business than watching what happens to cash when the music slows down. In fast seasons—when revenue is growing, invoices are paid promptly, and the sales team is celebrating—almost any business can look healthy. The profit and loss statement shines. EBITDA looks strong. Year-on-year growth becomes a badge of honour. Bonuses follow. But cash is less easily impressed. A well-run business should not need to borrow money to pay routine obligations—especially taxes. When a company borrows to settle corporation tax year after year, it is quietly confessing something: the accounting profit is not converting into cash profit at the rate management believes. And that gap, if left untreated, rarely closes by itself. It widens—until a slow season exposes the crack. Why the same business can look “great” and “fragile” at the same time Cash liquidity confusion usually comes from looking at the enterprise through the wrong lens. Revenue growth tells you customers like what you sell. Accounting profit tells you, broadly, whether the business model works under the rules of reporting. Cash tells you whether the business can keep operating without begging for oxygen. A business can grow 25% annually and still become more financially brittle if that growth is financed by: • longer debtor days, • heavier inventory, • upfront supplier payments, • rising overhead fixed costs, • or recurring debt rollovers that “smooth” cash gaps. In other words: growth can be real, and still be expensive growth. The 13-week forecast: the business’ lie detector test The short-term cash forecast is not glamorous, but it is honest. It is where optimism goes to be audited. When the 13-week forecast repeatedly points to a multi-million shortfall, it is not forecasting a mood. It is forecasting a mechanism: • Inflows are slower than expected, or more volatile than assumed. • Outflows are stickier than management admits (payroll, VAT, rent, debt service, suppliers). • The working capital engine is consuming cash faster than operations replenish it. And once a forecast shows the same gap week after week, the most dangerous response is “let’s see next month.” Cash shortages do not arrive as surprises. They arrive as forecasts management chose to ignore. The quiet misallocation: when compliance crowds out cash discipline Senior finance teams are often strongest at what is audited: reporting, statutory accounts, tax compliance, technical accounting. Those disciplines matter. But they can become a comfortable substitute for commercial clarity. A business does not fail because its audit file is tidy. It fails when it cannot meet payroll on time, or when the bank loses confidence, or when suppliers tighten terms. Liquidity management is not an accounting exercise. It is a survival discipline. What I would prioritise when the forecast shows a persistent deficit When liquidity stress becomes structural rather than temporary, the remedy is rarely “work harder.” It is “change the physics.” In practice, that means decisions such as: Deleveraging with intent If borrowing is funding tax or routine operating outflows, debt reduction becomes a strategic priority, not a treasury preference. Working capital as a profit centre Treat debtor days, supplier terms, and WIP discipline as executive KPIs—not operational trivia. Cash profit as the primary scoreboard Accounting profit can be legitimate and still irrelevant to near-term solvency. Cash conversion must sit at the centre of executive conversation. Seasonality planning that is real, not ceremonial Slow seasons are predictable. The surprise is usually managerial denial, not the calendar. The real lesson Liquidity problems are rarely caused by one bad month. They are caused by years of small decisions that seemed reasonable at the time—until they accumulated into a cash structure that cannot tolerate friction. A business with strong revenue and respectable profits should be getting stronger financially. If it is becoming more dependent on borrowing, it is not strengthening—it is merely expanding. And in the end, cash is the simplest truth in finance: You can’t pay wages with EBITDA. You can’t settle VAT with “growth.” You can’t fund resilience with presentation slides. You fund it with cash.