Cash Flow Starvation

Definition

A financial pathology where an organization lacks sufficient cash flow to sustain operations, regardless of underlying profitability or asset value. The organization dies of 'financial asphyxiation' - inability to convert value to liquid resources when needed.

Diagnostic Criteria

1. Cash reserves below 3-month operating expenses (runway under 90 days)
2. Consistent negative operating cash flow
3. Payment delays to suppliers, employees, or creditors
4. Inability to fund committed expenditures
5. Emergency financing sought at unfavorable terms

Symptoms

• Payroll anxiety and delayed payments
• Supplier relationship deterioration
• Deferred maintenance and investment
• Management distraction (fundraising over operations)
• Employee morale decline and talent flight

Disease Stages

Typical Course

Can develop gradually from structural issues or rapidly from external shocks. Typically acute and rapidly progressive. Death occurs within weeks to months without intervention. The most common proximate cause of organizational death.

Etiology

Results from revenue disruption, customer concentration risk, poor receivables management, over-investment, or external shocks (pandemic, market crash). Often the proximate cause of death even when underlying causes are different pathologies.

Risk Factors

• Customer concentration (>30% from single customer)
• Long receivables cycles (>60 days)
• Capital-intensive operations without reserves
• Rapid growth without adequate financing
• Seasonal or cyclical business without cash management

Differential Diagnosis

Conditions that may present similarly or co-occur:

Prognosis

Depends on underlying cause. If structural (bad unit economics), requires business model changes. If acute/external, may recover with bridge financing. Terminal if underlying business is fundamentally unviable.

References