The 45-day cash gap most founders don't know they have

One of the first things I do when I start working with a new client is map the cash cycle. Not the P&L - the actual flow of cash in and out of the business and the timing of each movement.

What I find, more often than not, is a gap. Sometimes it's 30 days. Sometimes 60. In one recent engagement, it was 45 days that the business had no idea existed, and it was growing in line with their revenue.

How the gap appears

The mechanics are usually straightforward. You order stock or incur costs and pay for it within 30 days. Your customers pay you 60 days after delivery. In between, you've got a business that's growing on paper and struggling for cash in practice.

Most founders know, loosely, that cash and profit are different things. What they often don't know is exactly where the gap in their business is and how large it is. It lives in the gap between your supplier payment terms, your stock holding period, and your customer payment terms.

How to find yours

Start with three numbers: how long you hold stock before it sells, how long your customers take to pay, and how long your suppliers give you before you have to pay them. The cash gap is roughly stock days plus debtor days minus creditor days.

If that number is positive - and it usually is for growing businesses - that gap has to be funded from somewhere. Usually working capital. Often an overdraft that gets bigger every time the business grows.

What you can do about it

The gap can often be reduced significantly without much pain. Renegotiating supplier payment terms is a good starting point. Reviewing stock levels and order volumes is another. And checking whether your customer payment terms are actually being enforced, or whether they've quietly drifted.

None of this requires a CFO. It requires someone to sit down with the numbers and ask the right questions. That said, if your cash cycle analysis reveals a gap that's growing in line with your revenue, that's usually worth getting proper eyes on.