Marginal cashflow tells you how much working capital you require to achieve an additional € in sales. If the working capital requirement is greater than your gross margin you will run out of cash. Your business might be profitable but volume is detrimental to your survival. This is what ‘growing broke’ feels like.
Perhaps the most famous example of a company that revolutionised itself by shortening cycle times is Dell. When Tom Meredith became CFO at Dell in 1991, it had a cash conversion cycle of + 63 days. When he retired in 2001 it was -21 (yes that is a minus!). He did this by streamlining manufacturing, working closely with suppliers and having customers pay in advance.
When there are pressing challenges – there can be a tendency to forget about purpose. The survival instinct narrows the mind and the focus of attention. Sometimes we may regard it as a positive. But in narrowing the mind we risk eliminating a lot of useful data and therefore being blind to many of the options and opportunities presented by an immediate challenge.