Why Growing Manufacturers Always Feel Short on Cash

Episode Summary

Growth is supposed to make business easier. More orders, more customers, more revenue. So why does cash often feel tighter just when a manufacturing company starts gaining momentum?

In this episode of The Manufacturing Money Room, Tolani Lawson tackles one of the most frustrating realities manufacturing leaders face: the disconnect between revenue growth and cash availability. While many business owners assume that increased sales will automatically improve cash flow, the reality is often the opposite. Manufacturing growth requires businesses to purchase materials, schedule labor, build inventory, and absorb operational costs long before customer payments arrive.

Tolani explains how cash becomes trapped inside growing organizations, particularly through expanding inventory, longer customer payment terms, operational inefficiencies, and capital investments that outpace financial planning. Drawing on real-world examples from manufacturers he has worked with, he illustrates why profitable businesses can still experience significant cash pressure and why growth without visibility can quickly become overwhelming.

The conversation also explores the emotional side of cash management. When owners are constantly monitoring payroll, vendor payments, and receivables, growth can feel more stressful than rewarding. Tolani shares practical strategies that stronger manufacturers use to stay ahead of these challenges, including treating inventory as stored cash, building operational visibility through key performance indicators, evaluating growth opportunities more carefully, accelerating cash conversion cycles, and adopting a more deliberate approach to expansion.

If you've ever found yourself asking, "We're growing, so why does cash still feel tight?" this episode provides the answers. More importantly, it offers a framework for building a business that grows not just bigger, but stronger, with the financial stability to support long-term success.

Tolani Lawson, CPA is a finance leader with experience at KPMG, WestRock, and Air Lift Company, specializing in manufacturing finance, FP&A, and helping businesses improve cash flow visibility and decision-making.

Got a question about something you heard today? Have a great suggestion for a topic or know someone who should be a guest? Reach out to us:
Email:  tolani@fiscal12.com

Website:
http://www.fiscal12.com

Download the free e-book: 7 Financial Strategies For Manufacturing Companies To Maximize Profits & Cash Flow

https://www.fiscaltwelve.com/7strategies

Catch The Manufacturing Money Room on YouTube:
https://www.youtube.com/@TolaniLawsonCPA

Follow Tolani on social media:
LinkedIn:
https://www.linkedin.com/in/tolani-lawson-cpa/

Facebook:
https://www.facebook.com/fiscal12Inc/

Instagram:
https://www.instagram.com/fiscaltwelve/

Transcript

Why Growth Can Create Cash Pressure

VoiceOver 0:01

Welcome to the Manufacturing Money Room with host Tolani Lawson. Tolani is an experienced CFO who works with manufacturing businesses to bring clarity to their numbers, especially when cash feels tight and decisions feel heavy. These are the conversations that usually stay behind closed doors. Until now, it's time to step into the Manufacturing Money Room.

Tolani 0:27

Today we're going to be talking about why growing manufacturers always feel short on cash. One of the most confusing moments for a manufacturing owner is when the business finally starts growing, and cash somehow feels tighter than ever. The others are there. The machines are running, the team is busy. From the outside, the company looks successful, but behind the scenes, leadership is watching cash constantly. They're checking receivables, managing vendor pressure, and watching inventory build up. It's difficult trying to make sure payroll, purchasing, and production all stay in sync. And eventually someone says the question I hear all the time. If we're doing more business than ever, why does cash feel tight? Or why does cash still feel so tight? That question catches a lot of leaders off guard because they assumed growth would create a breathing room. Instead, growth created pressure. And the truth is, this happens in manufacturing all the time. And this is not because the business is failing. It's not because the leaders are making reckless decisions. But because manufacturing growth consumes cash differently than most people realize. You have to buy material before you get paid. You have to schedule labor before revenue arrives, and you may carry inventory for weeks or months before it turns back into cash. And if growth accelerates faster than visibility and control systems mature, the business can start feeling financially stretched, even while revenue is climbing. That's what we're talking about today. Why growing manufacturing businesses so often fall short on cash, even when the business itself appears healthy. And by the end of this episode,

Revenue Growth vs. Cash Strength

Tolani 2:20

I want you to understand one of the most important mindset shifts in manufacturing leadership. Revenue growth and cash strength are not the same thing. In fact, sometimes rapid growth is the very thing that creates that cash pressure. Let's unpack why that happens. The first thing is the misunderstanding that creates so much stress for manufacturers. One of the biggest misconceptions in business is the idea that profit and cash are the same thing, but they are not. A company can look profitable on paper and still feel enormous cash pressure, especially in manufacturing. Let's use a simple example. Imagine you lend a large new customer. It feels like a breakthrough moment for a business and revenue is about to increase significantly, but you do not collect a single dollar from that customer. Before you collect a single dollar from that customer, what happens? You buy material, you schedule labor, you increase inventory, and you may even hire more people, right? You may purchase tooling and increase over time. So cash leaves the business immediately because these are immediate expenses. But the cash from the customer might not come back for 60, 90, sometimes 120 days. And during that entire period, the business is funding growth out of its own pocket. That's the first major mindset shift. Growth is expensive before it becomes profitable. And manufacturing amplifies this because fiscal production consumes working capital at every stage. You have your material, labor, wheat, finished goods, freight, receivables, all cash tied up everywhere. So how do you think

The Cost of Funding Growth Before Getting Paid

Tolani 4:00

about all these different segments as a manufacturer in order to make sure that your cash forecast and your cash cycle remains healthy? I remember working with a manufacturer that just landed several large contracts in a short period of time, and everyone was excited, right? The revenue projection looked incredible. But within months, leadership felt more pressure than they've ever felt before. And the reason was simple, the company had to fund that growth before the growth paid them back, just as we discussed. Inventory increased dramatically, and the production team wanted more safety stock because they were afraid of shortages. Customers pushed for shorter lead times and overtime increased and their receivables expanded because they were giving terms for these large customer orders. And suddenly, even though the business was generating more revenue, it was becoming increasingly cash constrained. The owner said something I'll never forget. I thought bigger orders would make us breathe easier. That's what he said. Instead, I feel like we can't catch our breath. That's the emotional reality of unmanaged growth. And it's not failure, it's just pressure. Let's dig into that a little more. We look at where cash quietly gets trapped in the

Where Cash Gets Trapped: Inventory Expansion

Tolani 5:15

business. Now, this is not about leakage, but trapping your cash in the business. There are four places I see cash get trapped repeatedly inside growing manufacturing businesses. The first one is the inventory expansion, the example I just described. This is the biggest one. As companies grow, inventory almost always grows faster than the leadership expects. Because you invest heavily in raw material, work in progress, and finished goods. And most of the time it happens with good intentions because people want to protect. People want protection. Protection against delays, against shortages, protection against customer disappointments. But every extra shelf of inventory is cash sitting still. And over time, many businesses slowly accumulate inventory that they no longer fully understand. They don't understand their slow-moving stock, their obsolete material, and they don't even know when they have excess safety stock. So cash is quietly frozen inside the building. Now, how many manufacturers truly check for their slow-moving stock and their obsolete material? Or you're doing that 12-month review to say, what have I not sold in the last 12 months? Or which raw material has not been consumed in production in the last 12 months? That is the cash that is getting quietly frozen inside your building. Now let's go to the second one. It's your receivables, receivables expansion. The second place that cash gets trapped is in receivables.

Where Cash Gets Trapped: Receivables Growth

Tolani 6:50

As manufacturers grow, they would often attract larger customers. And larger customers usually have longer payment cycles. So when you sold to smaller customers, you'd see terms like 30 days, maybe 60 days for your customers to pay you back. Those terms are easily negotiated. But when you deal with larger customers, those terms start to expand to 90 days, 120 days. And in some instances, I've seen 180 days term because these are larger customers and they have more negotiating power. So now the business is producing more, but waiting longer to get paid. And this creates a strange dynamic. Revenue looks healthy, but the checking account feels strained because the business is financing customer growth. And that itself is something that you don't really expect unless you've planned for it. That's the second one. Now let's go to the third one. While the first two are very much linked to cash, this third one, operational inefficiency, is usually

Where Cash Gets Trapped: Operational Inefficiencies

Tolani 8:00

not thought of as a cash leak or cash constraint because you're not looking at your operational inefficiencies as cash being spent. But you're overtime an expedited freak because you know you're trying to get goods in faster. There's rework as you continue to expand your production. Your employees need to learn how to customize certain things. So you have more rework, poor scheduling because now you're increasing at a faster pace than you used to. So production is getting disruptions more often. None of these things may look catastrophic when you look at it individually, but together they consume enormous amounts of cash. And many businesses normalize them because that's just part of growth. But operational chaos is expensive, especially when it's repeated every week, month to month, and before you know it, it really compounds on your business. Let's look at the fourth one,

Where Cash Gets Trapped: Capital Spending

Tolani 9:00

and this is one that I really love: capital spending ahead of structure. This one is subtle. Growth creates optimism. So companies invest, which that's great. That's where you want to be as a business. So you're investing in new equipment, new buildings, new systems. And sometimes those investments are absolutely necessary. But when investments happen faster than operational discipline matures, the organization creates more financial pressure than it can comfortably absorb. And that is where things start to feel a little tight. So while capital investment and spending ahead of that revenue, while that might be necessary, you do have to be careful in your cash planning to ensure that you do not over-constrain your cash as you make those large investments. These are some places where some equipment loans or things like that might come into

The Emotional Weight of Cash Flow Challenges

Tolani 10:00

play. But understanding your cash pattern and what that future cash flow looks like is important for that segment. So why does this feel emotionally heavy for owners? And this part doesn't get talked about enough because cash pressure is emotionally exhausting. Because unlike profitability, which might be revealed monthly, cash pressure is felt daily, especially when you look at things like weekly payroll or vendors calling for delayed payments, things that are resulting in production delays or customer expectations that are not getting met. Sometimes if you do take on too much loan, those loan repayments start to put pressure on the business as well. So every decision suddenly carries emotional weight. And many owners start asking themselves questions like, are we actually growing correctly? And why does success feel this stressful? Why are we working this hard and still watching cash constantly? The important thing to understand is that cash pressure does not automatically mean that the business is failing. Sometimes it means the business is killing faster than its systems, its forecasting, and its controls. But if leaders do not understand that distinction, they start reacting emotionally instead of structurally. So what you want to do is truly understand where growth is impacting your business and how to manage each and each of those processes that we walked through just now. So you want to think through your inventory expansion and make sure that inventory is not just getting purchased to satisfy that fear, but it's actually needed for production. As your receiver will start to expand and as you start to bring in larger customers, you want to make sure that you keep those negotiations going. Instead of a 120-day, maybe you can negotiate 90 days, you know. So

Finding Hidden Cash Inside Your Business

Tolani 12:00

you do want to try to find some leverage in there. And operational inefficiencies or things that I think that's where you don't really look at those things clearly. So poor scheduling, rework, scrap, those things are expanding and increasing. And you want to be mindful of that. You want a way to be able to track those things in your business. And then capital spending are things that you want to make sure you're planning ahead for. That way you don't feel the emotional weight of cash as you walk through your organization. I once walked through a facility with an owner who kept saying we should have cash and I don't understand where it's going. And as we walked the building together, we started identifying inventory that hadn't moved in months, then years. We looked palette after palette, shelves full of material purchased for jobs that suddenly changed, or safety stock that no one re-evaluated. There were old revisions and excess buys. At one point, the owner just stopped and laughed. Not because it was funny, but because it finally clicked. The cash wasn't gone. It was sitting all around us. That moment changed how they managed inventory forever because they stopped viewing inventory purely as operational protection and started viewing it as cash that is stored. And that shift matters a lot. What strong manufacturers do differently about cash is once you understand why cash

Why Strong Manufacturers See Problems Earlier

Tolani 13:30

feels tight during growth, you start to realize some of the things that you can do to actually change the situation. So what changes? Because the goal is not to stop growing. The goal is to grow without constantly feeling pressure and constantly feeling financially stretched. And after working with manufacturing companies over years, I've noticed something important. The strongest manufacturers don't necessarily have fewer problems. They just see pressure earlier and they see the indicators early enough. Because they see it earlier, they're able to respond differently. Let me walk through a few of the shifts that make the biggest difference. So if

Treat Inventory Like Stored Cash

Tolani 14:15

you're starting to feel this pressure in your business, these are some of the things that you can do right now to feel a shift in that pressure, to feel less of the pressure. The first one is treating inventory like cash. This is something that you've probably not looked at in this way, right? You see inventory as goods on the shelf, but no, look at it as cash. Cash that is sitting on your shelf in your building. This is probably one of the biggest mindset shifts. Most manufacturers naturally think about inventory operationally. Raw material feels like protection when you think about it. And finished goods feel like readiness. Then safety stock just feels like responsibility. You're being responsible. And sometimes it is absolutely necessary. But to be financially strong, you would eventually realize something important. Inventory is not just material sitting on shelves, it is cash. It is stored cash. And once leadership starts viewing inventory that way, decision making changes, questions become sharper, and you start thinking about things like do we actually need this stock? And how long has this material been sitting here? Would we buy this inventory again today if we had to make the same decision? And one of the most useful habits I've seen is simply reviewing slow moving inventory consistently, not once a year, but looking at that slow inventory number as part of your regular KPIs as you move through. You want to set a target for slow moving and make sure that it does not exceed that target. If you see your slow moving inventory creeping above 10% of your total inventory, you want to start correcting those issues immediately. And because many businesses accumulate inventory gradually, and after a while, no one questions it anymore. It just becomes part of the building. So that's why you want to make sure that you are keeping those as part of your KPI and making sure that your inventory is flexible. That is cash sitting on your shelf and it can't be used for hiring or equipment. So we don't want to keep our

Building Visibility Through KPIs and Dashboards

Tolani 16:30

cash on the shelf. The second biggest lever is to build visibility earlier. One of the biggest mistakes growing businesses make is discovering cash problems too late. Because by the time cash pressure shows up in the bank account, the operational behaviors causing it have usually been happening for months. That's why financially strong manufacturers build visibility earlier. They monitor inventory growth, shipment delays, receivables, overtime, production bottlenecks, margin, all of these should be part of your key KPIs as a manufacturer. And this is not just because they want more meetings or more reports, but because they understand something critical. Cash problems would usually begin operationally long before they appear financially. These are operational issues within the business, and that's an important lesson. Everything is connected. When you look at late shipments, that would delay invoicing. Slow invoicing delays collection, and slow collections would result in production disruptions and increasing overtime. Inventory buildup would increase your working capital pressure. So at the end of the day, everything is connected. And the strongest businesses build systems that help leadership see those trends before they become painful. Sometimes the most powerful thing a company can do is simply create a consistent weekly review rhythm. And that is one of the things that we can help you with as a manufacturer. You want to look at what shipped this week and what did not, what invoices are delayed and what inventory increased, where is cash getting stuck? Those conversations create awareness, and awareness is what changes behavior. Let us know if you need some help with that. And those are some of the dashboards and KPIs that we can help you build as a business owner to support your business.

Choosing the Right Growth Opportunities

Tolani 18:30

If you do not have the right systems to do that, we can help you with that. Now let's go to the third lever that you can pull. You want to make sure that as a strong manufacturer, you do not automatically fund every opportunity. This one is hard for many growing businesses because when opportunity shows up, the instinct is usually say yes. More customers, more volume, more work. But sophisticated manufacturers eventually learn that not all revenue strengthens the business equally. Some work improves the business, some work stretches it, and some create operational stability, while others just create constant disruptions. And strong leaders learn to ask a deeper question than how much revenue does this create? They ask, what is this growth requiring from the business? Will it increase my scheduling instability? Will it create inventory pressure? Will it consume disproportionate engineering time? Will it create cash strength? That shift is incredibly important because some revenue strengthens the business and some revenue just exhausts your business. So at the end of the day, the goal is to improve cash conversion speed. That's the fourth lever for you to pull for your business. So another major difference is how quickly cash moves through your business.

Improving Cash Conversion and Growing Deliberately

Tolani 20:00

This isn't just a finance issue, it's operational. That is one key thing for a lot of manufacturers. You see finance issues and you think, oh, this is just about the money. It's all about the operational systems within the business, the operational processes. Think about how many things have to happen correctly before cash arrives. Material has to move, production has to finish, quality has to approve, shipping has to complete paperwork, invoices have to go out, and collections have to happen. Any delay in that chain slows cash down. And strong manufacturers become very disciplined about reducing unnecessary delay. They invoice quickly, they communicate shipment status clearly to their customers, and they reduce unnecessary work in progress time. So they stay close to receivables because they understand that the faster cash moves through the business, the less pressure growth creates. The last point I want to say is act deliberately. Point number five, grow more deliberately. This may be the biggest lesson of all because manufacturers that grow emotionally do not grow deliberately. Manufacturers that grow deliberately understand that every stage of growth places new demands on their people, on their systems, on their inventory, their communication, even their leadership attention and their cash. And instead of just simply chasing volume, they focus on building a business that can support growth sustainably. That's a very different mindset because eventually leadership realizes the goal is not just to become bigger, the goal is to become stronger. And stronger businesses are usually built intentionally, not reactively. One of the biggest mindset shifts is realizing that growth and cash strength, those are not the same thing. A business can

Final Takeaway: Bigger Isn't Always Stronger

Tolani 22:00

grow aggressively and become financially fragile, or it can grow deliberately and become structurally stronger. So the key here is deliberate growth. And the difference is usually visibility. Visibility into how cash actually moves through the systems, how cash moves through your business. Because once leaders understand where cash gets trapped, they stop reacting emotionally to pressure and start managing growth more intentionally. Thank you.

VoiceOver 22:34

Thanks for spending time in the Manufacturing Money Room. If this episode gave you something to think about, let us know. Drop Tolani a voice note or leave a comment or review. And hey, if you like what you heard, share it with your friends. If you didn't like what you heard, share it with your enemies. You'll find the links in the show notes to connect with Tolani. And if you want to watch the episode on YouTube, that's there as well. Join us next time in the Manufacturing Money Room, where it's all about better numbers, better decisions, better manufacturing.