How to free up cash without raising more of it.

When a business runs short of cash, the instinct is to go and find some. A line of credit, an investor, a bigger overdraft. Sometimes that is genuinely the answer.

More often, though, the two largest pools of cash in a business are already inside it: money committed to things that are not earning yet, and the gap between the day you pay your suppliers and the day your customers pay you. Neither requires anyone's approval to fix. Both are usually bigger than the facility you were about to apply for.

Here is how to find them.

Start by separating spending that earns from spending that waits

Every business has capital commitments — equipment, vehicles, fit-outs, software licences, inventory, deposits. On the accounts they all look like one category. They are not.

Sort them into two lists:

Earning now. The machine that runs every day. The inventory that turns over monthly. The subscription three people use daily.

Waiting. The second machine bought for a contract that hasn't started. The stock ordered for a season that moved. The larger premises taken for headcount not yet hired. The licence tier bought for a feature nobody has switched on.

Nothing on the second list is a mistake. Every item on it was bought for a reason, usually a good one — capacity ahead of demand is how you avoid turning work away. But capacity ahead of demand is also, precisely, cash sitting still.

The useful question is not was this right to buy. It is when does this start earning, and what has to be true for that to happen? If nobody can answer that in one sentence, you have found cash.

The number most owners have never calculated

The second pool is the gap between paying and being paid. Formally it's called the cash conversion cycle, and it is three numbers:

• How long your money sits in inventory before it is sold.
• How long customers take to pay you after you invoice.
• How long you take to pay suppliers after they invoice you.

Add the first two, subtract the third. The result is the number of days your business funds itself out of its own pocket. Every one of those days has a cost, whether or not it appears anywhere in your accounts.

Most owners have never worked this out. It is worth an afternoon, because unlike almost everything else in finance, each of the three levers can be moved without anyone's permission — a payment term renegotiated, an invoice sent on the day of delivery instead of at month end, a deposit taken up front, a slow-moving line discontinued.

Shortening the cycle does not increase your revenue. It increases the amount of your own money you get to keep using.

A worked example

Cable & Wireless Guatemala (Liberty Media) — telecom. Capital spending reduced by 50% in one year. Cash conversion cycle shortened by 20% in six months. Neither came from cutting growth; both came from separating spending that was earning from spending that was waiting, and from closing the gap between paying and being paid.

This is an account of one engagement in one industry, not a projection. Every business's numbers are its own, and nothing here is a promise of a similar result.

The reason that example is worth citing is not the size of the percentages. It is that a telecom business — an industry that is close to pure capital spending — found half of it was waiting rather than earning. If it can be true there, it is very likely true in a business with a fraction of the infrastructure.

What this is not

It is not cost-cutting. Cutting spend across the board is easy, feels decisive, and reliably removes the parts of the business that were working alongside the parts that weren't. Mapping spending to value is slower and harder and it is the actual job.

It is also not a reason to avoid raising money. Sometimes the growth in front of you genuinely needs outside capital, and going after it is right. But it is a much better conversation to have after you know what is already trapped inside — both because you may need less, and because anyone lending to you or investing in you will ask exactly these questions. Arriving with the answers changes the tone of the meeting.

Where to start on Monday

Three things, in order, none of which need software:

• List every capital commitment made in the last twelve months and mark each one earning or waiting. Put a date next to each "waiting" item for when it starts earning. The ones with no date are your first conversation.
• Calculate the three cycle numbers. Inventory days, receivable days, payable days. Even rough figures from last quarter will do.
• Pick the single largest of the three and move it by a week. Not all of them, one. The point of the first move is to find out how much friction there really is.

If the answer to all of this is "I don't have anyone who owns these numbers", that is its own finding — and it is the same finding behind what happens when finance is still run by the founder and what a fractional CFO actually does. The work above is not complicated. It is just nobody's job yet.

Juan Carlos Domínguez leads CFO and financial advisory work at SB Financial, part of Studio Bananas Group. SB Financial advises — it is not a lender, and nothing here is tax, legal or investment advice.