── ── Startups
Cash Conversion Cycle — Why Profitable Businesses Run Out of Cash
The cash conversion cycle (CCC) measures how long cash is trapped between paying suppliers and collecting from customers: CCC = DIO (days inventory) + DSO (days receivables) − DPO (days payables). A long CCC means growth consumes cash — the faster you grow, the tighter you get — which is why profitable SMBs go insolvent. Shortening the cycle frees cash…
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How it works
1. Measure the three components — DIO (inventory held), DSO (time to collect), DPO (time you take to pay). 2. Compute CCC and see how many days of cash are locked in operations. Gate: if CCC × daily burn exceeds your cash buffer, growth is a liquidity risk, not just an opportunity. 3. Shorten DSO — invoice immediately, deposits/upfront, faster terms, autopay, chase overdue (pairs with ar-dso-discipline). 4. Shorten DIO — less/just-in-time inventory, drop-ship, faster turns. 5. Lengthen DPO sensibly — negotiate supplier terms without harming the relationship. 6. Model growth against the cycle — project the cash a growth plan will absorb before committing. Gate: scaling with a long CCC and no cash cushion is how solvent firms fail.
When to use it
- a profitable-on-paper business is short on cash
- 'we're profitable but always broke', managing working capital, inventory or receivables tying up cash
When not to use it
a pure digital business with instant payment and no inventory/receivables (cycle ~0).
Worked example
Cash Conversion Cycle — Why Profitable Businesses Run Out of Cash
The cash conversion cycle (CCC) measures how long cash is trapped between paying suppliers and collecting from customers: CCC = DIO (days inventory) + DSO (days receivables) − DPO (days payables). A long CCC means growth consumes cash — the faster you grow, the tighter you get — which is why profitable SMBs go insolvent. Shortening the cycle frees cash…
Install this skill (free, MIT)
npx skills add deciqAI/knowledge-skillsUseful? Star the repo — stars help other builders find it.
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