As part of the core financial analysis we conduct with every client and prospective client, one of the first things we assess is the business’s capital needs — both for the current state and future growth.
One of the most common issues we see across businesses is the challenge of managing the cash-to-cash cycle gap. If you’re wondering, “What exactly is that?” or “How do figure out what mine is?”—you’re not alone. The concept is best understood through a simple example.
📊 A Quick Model: Understanding the Gap in Numbers
Let’s say a company sells a product to its customers on 60-day payment terms (Accounts Receivable). It pays its vendors in 30 days (Accounts Payable). For simplicity, assume no inventory is held (not realistic for most businesses, but helpful for our simple model).
This setup creates a 30-day cash gap — you pay your suppliers after 30 days, but don’t collect cash from your customers until 60 days later.
Let’s plug in the numbers:
| Sales | $20,000,000 |
| Cost of Goods (Cogs) | $12,000,000 |
| Gross Margin | $8,000,000 |
| GM % | 40% |
| Daily Cogs | $32,877 |
| Daily Cogs x Cash Cycle Gap | $986,301 |
That means you need nearly $1 million in working capital available just to cover that gap.
🚧 But What Happens When Things Get More Complex?
Now imagine this same business is:
– Growing 25% year over year
– Increasing their marketing spend
– Still working toward break-even
– Needing to pay deposits to suppliers
– Finally landed a huge but unexpected order from a dream client
– Getting a call from their bank that lending is tightening
Suddenly that $986K gap could grow to $1.5M, $2.5M—or more—depending on how fast you’re scaling and what you need to keep up.
These are all real-world dynamics we help our clients navigate every day.
✅ So, What Can You Do?
If any of this sounds familiar — whether it’s cash gap concerns, upcoming growth, or simply a need for a better capital strategy — we’re here to help. Click on the “Speak to A Rep” button to schedule a call.