Yes, you read that right. A company can be profitable on paper and run out of cash to operate. It can have customers, sales and profits and still be unable to pay payroll. It sounds contradictory. But it happens more than you'd think. And it almost always has the same cause: a weak financial structure.
What is financial structure?
It’s the way your company finances its operations and investments. The mix between debt and equity. The maturity of your obligations vs. the maturity of your assets. The relationship between what you’re owed and what you owe.
A healthy financial structure means your company has the right foundation to grow without breaking.
Signs of a weak structure
- You use short-term credit to finance long-term assets (machinery, warehouses, expansions).
- Your debt level is so high that interest eats up the margin.
- You depend on one or two customers to cover your fixed obligations.
- You have no liquidity reserves to face the unexpected.
A real example
Felipe had a construction company with big projects and seemingly healthy margins. But he financed every project with short-term revolving credit lines. When the market slowed and two projects were delayed, the banks didn’t renew the lines.
The company was profitable. But it didn’t have the structure to weather a tough quarter.
Pillars of a strong financial structure
- Appropriate leverage: Debt yes, but at the right levels for your industry and cash flow.
- Maturity matching: Long-term investments financed with long-term debt. Operations financed with operating resources.
- Source diversification: Don’t depend on a single bank or a single type of financing.
- Liquidity cushion: Keep reserves equivalent to 1-3 months of fixed expenses.
At MOVA we analyze your company’s financial structure and help you build a solid foundation so growth doesn’t break you.
