Too Fast or Too Slow – Growth Can Still Cause the Same Cash-Flow Problem

Over the past few months, I’ve come across two companies facing serious cash-flow challenges but for completely opposite reasons. As I’ve discussed in previous blogs, cash flow is one of the most common challenges for growing companies. When you read the cases you may think they have cash issues because they are fairly new and small in size. However, in both of these examples the companies have been around for a while and both are in the hundreds with regards to number of employees. 

Case 1: Growth Is Too Slow to Match the Investments 

Let’s start with my friend John. He runs a family-owned agricultural business growing herbs, lettuces, and select vegetables in large greenhouses, mainly supplying restaurants across the region. As the second generation at the helm, John has led the business through a tough pandemic period and into a post-COVID rebound over the past three years.  

Anticipating strong market growth, John made bold investments. Over the last 18 months, his company built two new greenhouses and implemented cutting-edge AI technology to boost crop yields. The system uses an array of cameras and machine learning to optimize watering and fertilization — resulting in yield improvements of over 15%. 

These upgrades were financed through a mix of internal funds and bank loans. Now that everything is operational, the company can deliver 50% more produce than it could 18 months ago. 

But there’s a problem. 

Sales haven’t grown as quickly as expected. Many restaurants are still recovering and haven’t returned to pre-pandemic order volumes. Despite the business growing, the combination of lower-than-planned revenue and rising interest rates has put John in a tight cash position. For the first time in the company’s history, he’s now seeking an external investor. 

The cash-flow problem is due to slower-than-expected revenue growth after high up-front investment. 

Case 2: Growth Is Too Fast for the Business Model 

Now let’s look at another case. Andrea is a client who runs a stone-working company. Founded five years ago, the business has grown steadily, but in the last year, demand has surged. Stone has become increasingly popular in both residential and commercial design, and Andrea’s team has earned a great reputation for high-quality work delivered on time. The company has also been successful in its sales & marketing and really getting the word out there. 

The company has a strong core team of about 90 people and a broad network of subcontractors for handling project peaks. Confident in their track record, Andrea offers fixed pricing with full payment only upon project completion, a bold selling point that clients appreciate. 

This success has led to more projects as well as larger in size projects: a real dream for any entrepreneur. 

Despite the success, Andrea is struggling with cash flow. Here’s why: 

• Larger projects take longer, tying up capital for extended periods. 

• Bigger jobs require more experienced (and more expensive) personnel. 

• Complexities have led to delays and some rework. 

• The sheer volume of simultaneous projects further increases the amount of capital tied up in work-in-progress. 

 

So, although the business is growing fast, Andrea effectively has to bankroll the projects for longer and at greater cost, stretching the company’s finances thin. 

This cash-flow problem is due to too much growth with a business model that doesn’t support it. 

Summary and Lessons 

Both companies are “successful,” they’re growing and have strong demand. They both have cash problems for very different reasons. 

• In John’s case, growth is too slow relative to upfront investment. The remedy is difficult in the short term — he now needs to raise capital, likely on less favorable terms than if he had done so earlier. Ideally, John would have built a bigger cash buffer before initiating major investments. When planning growth, it’s wise to ask:?What if revenue only reaches 70–80% of the plan or is delayed by 6–12 months? Can the company still manage with its current financing? 

• In Andrea’s case, growth is too fast for the current business model. She needs to adapt by: 

• Introducing milestone-based or partial payments on large projects 

• Pricing larger projects differently, not cheaper just because they’re bigger 

• Rebalancing risk between her company and the client 

 

In the short term, Andrea should consider approaching key clients, especially on larger projects, to request partial payments, leveraging the trust and relationships she’s built. 

Conclusion 

If you’re growing your company, remember especially when it comes to cash flow: growing too slow or too fast can both be a challenge. Plan carefully, test your assumptions, and ensure your business model evolves with your growth.