A growing business is supposed to feel good. New clients, increasing revenue, a team that is expanding. But for many founders in that growth phase, there is a nagging problem underneath all of it: the bank account does not reflect the success that the income statement seems to be showing. This is a working capital problem. And it is far more common than most founders realise.
Working capital, the difference between your current assets and your current liabilities, is the financial fuel that keeps your business moving day to day. When it is managed well, growth feels manageable. When it is not, growth can actually make things worse, because scaling a business with a broken working capital cycle just means the problem gets bigger, faster.
In the Founder Value Unlocked podcast, we directly address this tension. Founders often know the story of their bank balance better than they know their income statement. They feel the cash. They live the cash. But without a clear framework for understanding how their business model converts revenue into actual money, that gut feel only gets them so far.
Why Growing Businesses Run Out of Cash
The intuition most founders have is that growth solves financial problems. In reality, growth often amplifies them, at least in the short term.
When your business grows, you typically need to spend before you earn. You hire ahead of demand. You take on larger orders that require upfront costs before the invoice is raised. You invest in new capabilities, new markets, or new products. All of that activity consumes cash before a single rand of new revenue arrives in your account.
This dynamic is clearly described as a “J-curve”. Every time a business makes an investment in something new, whether a product, a market, or added complexity, it goes into a temporary financial slump. Cash that was flowing through the business gets redirected into development, business development, and marketing, without an immediate return. Founders who do not anticipate this curve get caught off guard by it. Those who understand it can plan for it.
The J-curve is not a reason to avoid growth. It is a reason to understand your working capital position before you commit to it.
What Working Capital Actually Covers
Working capital is not just a single number on a balance sheet. It is a cycle, and understanding that cycle is where the practical management begins.
The working capital cycle describes the journey from cash out to cash in. You spend money to produce or deliver your product or service. You raise an invoice. You wait for that invoice to be paid. The cash arrives. And then the cycle starts again.
The length of that cycle, and the gaps within it, determine how much working capital your business needs to function at any given level of revenue. A business with a 30-day average collection period has a very different working capital requirement than one collecting at 90 days. A business that pays its suppliers on 60-day terms has a very different position than one paying on 14 days.
None of these dynamics show up clearly on a profit and loss statement. They live on the balance sheet and in the cash flow forecast. That is why so many founders, even those working closely with accountants and bookkeepers, still find themselves surprised by cash shortfalls. The numbers they are looking at every month were not designed to surface this kind of problem.
The Three Levers of Working Capital Management
Once you understand your working capital cycle, you have real levers to pull. These are not abstract financial concepts. They are practical decisions that affect how cash moves through your business every single month.
Debtor management. How quickly your customers pay you is one of the most direct influences on your working capital position. Shortening your average collection period, whether through tighter payment terms, early payment incentives, or more consistent follow-up processes, frees up cash without requiring any additional revenue. Even moving your average debtor days from 60 to 45 can have a material impact on how much working capital you need to keep in reserve.
Creditor management. The flip side is how quickly you pay your suppliers. Negotiating longer payment terms where appropriate, without damaging the relationship, gives you a wider window between cash out and cash in. This needs to be managed carefully, but it is a legitimate and often underused lever.
Pricing and payment structure. The way you have structured your pricing directly affects your cash flow. Requiring deposits on larger projects, moving certain clients to retainer arrangements, or billing in advance rather than in arrears can all improve your working capital position significantly. These are commercial decisions as much as financial ones, and they are far more powerful than most founders appreciate.
The Link Between Working Capital and Scale Readiness
Finovate’s 5C diagnostic data, drawn from more than 50 South African scaleup businesses, shows that the Cash pillar, which covers working capital, forecasting, and cash conversion, scores an average of just 44% across the businesses assessed. The benchmark for scale readiness is 80%.
That gap is telling. It is not that these businesses are poorly run. Many of them are ambitious, fast-growing companies with strong commercial momentum. But they are scaling without the financial infrastructure to manage the working capital demands that growth creates. And that combination, high growth ambition paired with weak cash cycle management, is where businesses get into serious trouble.
The cost of not addressing this is not just financial stress. It is a missed opportunity. Businesses that run close to the edge on working capital cannot invest confidently in growth. They cannot take on the larger contracts that would accelerate their trajectory. They cannot hire the people they need ahead of the revenue that justifies the hire. Poor working capital management does not just create risk. It actively constrains growth.
Working Capital and the Cash Flow Forecast
Effective working capital management does not exist in isolation. It connects directly to your cash flow forecast, which is the tool that gives you forward visibility over your liquidity position.
A well-built cash flow forecast maps your working capital cycle explicitly. It shows when invoices are expected to be paid, when supplier payments go out, and what your net cash position looks like across the coming 90 days. It surfaces the gaps before they become crises. And it gives you the lead time to act, whether that means drawing on a facility, adjusting payment terms, or timing a capital investment differently.
Without that forward visibility, working capital management is reactive. You are always responding to what has already happened rather than shaping what comes next. The goal is to get ahead of the cycle, not to chase it.
What This Looks Like in Practice
For a manufacturing business with long production cycles, working capital management might mean negotiating stage payments from customers that align with production milestones. For a professional services firm, it might mean shortening invoice payment terms and building a more consistent billing cadence. For a product business carrying inventory, it means understanding the cash tied up in stock at any given time and making deliberate decisions about what to hold and what to reduce.
In every case, the starting point is the same: map the cycle, understand the gaps, and identify the specific levers that are most relevant to your business model. What works for one business will not necessarily work for another. But the discipline of understanding your working capital position and actively managing it, applies universally.
Find Out Where Your Business Stands
If your cash position is not reflecting the health of your business, or if you are growing fast but feeling financially stretched, the Finovate 5C Diagnostic is a good place to start. It is free, takes around 10 minutes, and gives you a structured view of your business across all five pillars of a healthy finance function: Commercials, Cash, Compliance, Capital, and Cadence.
The Cash pillar specifically looks at your working capital cycle, your cash conversion processes, and your forecasting capability. The report you receive will show you clearly where the gaps are and what to prioritise.
From there, you can book a free discovery call with the Finovate team. They will walk through your results with you and help you identify the specific actions that would move the needle on your cash position, in most cases within 90 days.
Growth is only sustainable when the cash cycle supports it. The good news is that working capital is one of the areas where relatively targeted changes can produce meaningful results, quickly.
Take the free 5C Diagnostic: finovate5cframework.scoreapp.com
Book your free discovery call: finovate.co.za/contact
Watch the full conversation with Ross & Francois on the Founder Value Unlocked podcast: youtu.be/w6AiSkqKpf