It builds loyalty, not to mention the ability to call in a favor from time to time.
Loss of that confidence will hamper growth.Ī healthy cash flow helps you maintain positive financial relationships with both customers and suppliers. Just as you need your customers to pay invoices on time (the accounts receivables side of cash flow), your suppliers and partners need confidence in your ability to pay them as well. Why Healthy Cash Flow Can Do More Than Boost A Company’s Market AgilityĪn organization’s growth involves more than just the company’s own resources. If you’re unable to respond to an unexpected opportunity due to budget constraints - or because any cash investment requires showing an immediate return - you stagnate. However, an agile company needs the freedom to deviate from the budget without causing undue stress on its health, goals or people. There’s a good reason most organizations try to stay within carefully crafted budgets. Of course, you can’t jump on every opportunity that comes along.
On top of all these woes, an unhealthy cash flow makes it difficult to weather unexpected challenges (a worldwide pandemic, for example) that can turn an organization’s operations up on end. And if a competitor jumps on the opportunity first, investors may assume the company has poor leadership or has lost its agility. Taking on even more debt to do so puts the company in an even more perilous position. With negative cash flows, such organizations don't have the cash on hand to take advantage of a genuinely lucrative opportunity when it comes along. From my perspective, this behavior harkens back to the late 1990s and early 2000s, when tech companies lacking solid business plans operated as though money and expansion were unlimited.
Even if they can show revenue growth, they're losing money hand over fist. They expand too quickly, build enormous campuses and hire hundreds of employees, all to impress their investors. Many companies - especially younger ones - have the outward signs of growth but are in a dangerous place. Massive, perpetual growth isn’t always a positive thing, even if that’s what shareholders want. Unhealthy Growth (And What Cash Flow Has To Do With It)
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