Can your balance sheet afford your growth plan?

Receivable days

How long customers take to pay after you invoice. Measured on revenue, because revenue is what you invoice. Use what actually happens, not the terms you agreed, because for most Indian B2B companies those are two different numbers by a wide margin.

Inventory days

How long stock sits before it is sold. Measured on cost of sales, because stock is carried at what you paid for it. Zero for most software and services businesses.

Payable days

How long you take to pay suppliers. Also measured on cost of sales. This is the one component working in your favour, and it has a legal ceiling for registered micro and small suppliers.

Receivables plus stock less payables is the cash the business has inside its own cycle at any moment. Divide it by revenue a day and you have the cycle in days.

Illustrative figures for a fictional B2B company planning to grow monthly revenue from ₹40 lakh to ₹64 lakh over a year, at a cost of sales that holds at 45% of revenue. Every number is invented.

That year produces roughly ₹65 lakh of accounting profit. Because ₹42.9 lakh of it became receivables rather than cash, about ₹22 lakh reaches the bank. A founder who built the hiring plan on the profit figure is ₹43 lakh short, and finds out somewhere around month eight.

Now change one input. Bring collection days from 68 to 45 across the year and the cycle at year end holds ₹65.3 lakh, which is ₹6 lakh less than it held at the start, on revenue 60% higher. Working capital has stopped consuming cash and started releasing it.

• ·Receivables, stock and payables as rupee amounts, so you can see which one is holding the cash.
• ·Net cash inside the cycle, and the cycle expressed in days of revenue.
• ·What the cycle will hold at your planned revenue, with no improvement in anyone's behaviour.
• ·The extra cash the growth absorbs, which is the figure to set against your runway before signing off the plan.
• ·How much working capital each additional rupee of monthly revenue needs.
• ·What the same plan absorbs at shorter collection days, and what the difference between the two is worth.

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• ·Services firms selling to large corporates, where 60 to 90 day payment is normal and delivery cost is salaries paid monthly. The gap between paying the team and being paid is the whole problem.
• ·Anyone holding physical stock, where cash leaves at purchase and returns only after a sale and then after collection. Growth here needs inventory bought for demand that has not arrived.
• ·Companies selling to government or public sector buyers, where the cycle is long and largely outside your control.
• ·Businesses settled by a platform or aggregator, which collects from the customer immediately and pays you on its own schedule.

And where it barely matters: subscription software billed annually in advance, and retail or food service where customers pay at the counter. Both can run a negative cycle, collecting before they pay suppliers, which means growth generates cash rather than consuming it. If that is you, this tool will tell you so in one line, and the thing to protect is the terms that make it work.

1. 01Invoice on delivery rather than at month end. This takes days out of the cycle permanently and costs nothing.
2. 02Bill what has been delivered and never invoiced. Most firms find a week or two of revenue sitting unbilled the first time they look.
3. 03Fix the disputes holding invoices up. A surprising share of overdue payment is stuck on a purchase order reference or an approval nobody chased.
4. 04Escalate on a fixed schedule rather than when someone remembers, so chasing stops being a decision each time.
5. 05Move new contracts to advance or milestone billing. Far easier to agree at the start of a relationship than to renegotiate later.
6. 06Order stock more often in smaller quantities, and be honest about which items are never going to sell.

The output is only useful if it reaches the conversation where the year gets decided, which is usually a month or two before the financial year starts.

1. 01Does the cash we hold cover both the operating loss and what the cycle will absorb? These draw on the same balance, and plans routinely account for one and forget the other.
2. 02Can the cycle be shortened before the growth arrives rather than during it? Fixing collections at ₹40 lakh a month is considerably easier than at ₹64 lakh, when the volume of invoices has risen and nobody has time.
3. 03Is the growth rate in this plan one the balance sheet can fund, and if not, are we willing to change the plan rather than discover the answer in month eight?

Founders who run this before the plan is signed off usually find one of two things. Either the year is affordable and can proceed with some confidence, or fixing collections first delivers most of what a funding round would have. Both answers are worth the twenty minutes, and only one of them involves talking to an investor.

• ·It uses averages across the whole business. A cycle held up by one large slow customer behaves worse than the average suggests, because the concentration means one conversation decides most of the balance.
• ·It assumes cost of sales holds its share of revenue as you grow, which is right for a stable margin and wrong if the mix is shifting.
• ·It excludes statutory dues you have collected and not yet deposited. GST, TDS and the employee share of provident fund sit in your account for a few weeks and none of it is yours, so treating it as working capital is funding the business with other people's money.
• ·It says nothing about the operating loss. If you are burning cash as well as funding a cycle, both draw on the same balance and both have to be covered.
• ·It is a planning tool, not a forecast. For week-by-week cash, the 13-week forecast is the document that answers the question.