Cash flow management for revenue-cyclical businesses

Profit is measured over a period; cash is measured on a date. A business can be profitable across a quarter and still be unable to make payroll in week six, because supplier payments clear before customer payments arrive. That gap is the cash conversion cycle, and it widens with growth rather than narrowing.

Add days inventory outstanding to days sales outstanding, then subtract days payables outstanding. The result is the number of days your own capital funds operations before customer cash arrives. A 60-day cycle means every dollar of growth requires roughly two months of self-funding.

A common target is enough liquidity to cover the cycle plus one payroll period at peak outflow — general guidance, not financial advice. For cyclical businesses, size against the trough month rather than the annual average — the average is precisely the number that hides the problem.

The most expensive mistakes in small business finance are duration mismatches in either direction.