Identifying a Cash Crunch Early

Five leading indicators

1. DSO trending up 5+ days quarter-over-quarter. 2. AP aging beyond terms (your own bills slipping past due). 3. Pipeline coverage (next-quarter expected revenue / next-quarter committed costs) below 1.0. 4. Reserve months (cash divided by monthly operating cost) trending down 3 months in a row. 5. Customer concentration above 30% in any single client.

Any one of these is a flag. Two or more is a signal. Three or more usually means the crisis is 2-4 months out and you should already be acting.

Building the early-warning dashboard

These five metrics fit on a single page that takes 30 minutes to build in a spreadsheet (or comes pre-built in tools like Runway Forecaster). Review weekly during a 30-minute owner check-in.

The benefit isn't sophistication — it's pattern recognition. Owners who look at the same five numbers every week notice deterioration in week 2 instead of week 12. By week 12, the available responses are layoffs and emergency financing; in week 2, they're a phone call to a slow-paying client and a deferral on a planned hire.

Leading indicators to monitor weekly

DSO trending up over 4-8 weeks, AP aging extending into 60+ buckets, cash conversion ratio below 0.7, line of credit utilization above 70%, and any covenant ratio within 10% of trip — any one of these is a yellow flag, two together is a red flag, three together is a crisis already in progress. Tracking these on a weekly dashboard catches the deterioration months before the bank statement does.

Pipeline coverage is the demand-side leading indicator. Healthy businesses run with 3x pipeline coverage of the next quarter's revenue target; coverage below 2x is the signal that cash receipts are about to fall and the cost base needs to be reviewed. Most small businesses don't track pipeline coverage formally and are surprised when revenue softens 60-90 days after pipeline does.

The cultural indicator is the conversation about money. When the founder starts checking the bank balance daily, when AP starts asking which invoices to pay first, when payroll funding becomes a weekly question — those are operational signals that the formal metrics will confirm a few weeks later. Treat them as data, not anxiety, and start the formal cash review immediately.

Build the dashboard once and look at it weekly. The temptation in a crisis is to obsess over the numbers daily; the temptation in calm periods is to skip them entirely. Both are mistakes. A consistent weekly review with the same indicators, in the same order, by the same person, is what catches deterioration in the early stages when there's still time to respond proactively.