Why Cash Flow in Manufacturing Companies Breaks and What Leaders Get Wrong

Manufacturing Cash Flow Challenges Are Real and They Hurt

One of my favorite quotes is from Mike Tyson. Regardless of what you think of the man, he was on of the most ferocious boxers of all time and sticking with my title track selection today, I’m starting with Iron Mike:

“Everyone has a plan until they get punched in the face.”

Last year I spent a few months working along side a client who had hired a “big four” accounting consultant to build them a sophisticated financial model. Needless to say, the accounting consultant was charging more than we were and they delivered a robust, fully linked, multi-tab, dashboarded financial model for the client. It had everything; cashflow model, balance sheet model, unit cost economics, funding forecasts, links of links… Me being me, in an effort to understand it through my lens, went straight to the assumptions on cash conversions cycle and immediately noticed that they didn’t reflect the reality I knew for the client.

When I changed the CCC assumptions most of the dashboards didn’t change much. In the spirit of collaboration, I emailed the consultant and asked for guidance. The response I got was “If we just apply the 30/90 day assumption on AP/AR, we will get some cash fluctuations that are not meaningful (i.e. USD 5m in one month and 5m out next month).” This client was not doing $100,000,000 in revenue and did not have $25,000,000 in cash - in fact at the time, I think they had less than $5,000,000.

The ground truth I’d expect for fluctuations of $5,000,000 in cash balance to qualify as “not meaningful” would be a far more mature business. It wasn’t the consultants fault, they delivered a beautiful model as contracted and it wasn’t necessarily the clients fault because they didn’t yet know what a functional outcome looked like for them. They’d stepped into the ring to begin the bare knuckle process of scaling out manufacturing. They certainly weren’t prepared for a facepunch and the model and the consultancy weren’t granular enough to help them duck or recover.

What I’ve learned over the years is that even in the best of times, you can’t run a company on a spreadsheet and if you’re running a scaling hard tech company in 2026 you should plan on getting punched in the face at least once a month.

Why Spreadsheets Work for Services Businesses

There are companies for whom real-time precision is less important and specific sectors where companies do run in a way that matches a spreadsheet. A look at the modern US economy will help us understand why excel has become the most pervasive tool in the toolbox and also why it won’t work to support the new Industrial Renaissance.

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The US economy (and most of the west) are services economies driven by consumer spending. According to visual capitalist approximately 70% of the US economy is services with manufacturing at 12% and government an additional 12%. Chances are high that the financial professional in your organization spent most of their career in a services business. Even if they’re an MBA, even if they’re ex-McKinsey, the odds are just math and the best spreadsheets are still spreadsheets.

In a typical services business, the cost structure is about 70% people, 7% office & rent and 5% technology with the rest as other. People, rent and software are paid in predictable installments in roughly the same amounts and same times, usually in consistent monthly increments. If you have a customer base paying you in a similar way like through subscriptions, hourly fees, rental income, or interest charges, revenue and expenses are both predictable, line up quite nicely with each other and fit quite beautifully into an excel model.

Manufacturing Cash Flow Challenges Versus Services Businesses

What if you are one of the brave 12% in the US that are builders. How pretty is your picture?

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In a manufacturing company, expenses are pretty much turned upside down. 60-80% of total expenses go toward COGS (cost of goods sold) or the inputs you need to buy to make the product that you sell to customers. Other than direct labor and rent the rest of that COGS cash is going out the door early, in advance of cashflow and in big giant slugs to all of your suppliers. Indirect labor, sales and marketing, rent etc (the predictable ones) account for only 20% of total costs on average. You cashflow is completely opposite that of your service based brethren - lumpy and volatile. This is why soooooo many companies raising soooooooooo much investment in the USA are services companies. Predictable cashflow with solid and hopefully expanding margins in what investors want. They want it so much and so many hard tech models have been forced into into “as-a-service” that we can no longer tell our collective aaSes from our elbows, I digress.

Why Spreadsheets Fail to Capture Manufacturing Cash Flow Challenges

Like the rest of manufacturing, the builders finance function in America is a lost art. It died out over the last 30 years or was outsourced along with a lot of the building. If American Dynamism is going to scale, if we are truly going to rebuild supply chains, with all of the onshoring, reshoring, reskilling and all around building that needs to happen to our industrial base all of those things need to happen in to the finance function as well.

Spreadsheets ain’t gonna do it. I’ll ask you straight out, has your finance person been in a street fight? Do they understand operational and supply chain dependencies, enterprise and government procurement behavior and how to free up trapped corporate liquidity to maintain the optionality and control you need to respond to a dynamic market? Has your finance leader been punched in the face? If they’ve scaled a manufacturing business or a hard tech startup they know what I’m asking.

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Operational Reality Drives Cash Flow in Manufacturing Companies

Good planning matters to services and manufacturing companies alike but builders live in the world of atoms. They make things, and things exist out in the world. Things are made of other things, they need to be moved around, assembled, shipped, commissioned and repaired. The level of responsiveness and precision required to run a builders business is orders of magnitude higher than that of services company’s.

A disruption to a services company is a cyber attack or an AWS outage. For a builder its a sunken ship, a chemical fire or an exploded rocket. Closed ports, supplier black lists, and tariffs are not disruptions, they are BAU going forward. If you’re going to give yourself a fighting chance you need a counter punch. I’ve spent the last 10 years helping companies learn how to take a punch and counter and it is a full team sport. The reason spreadsheets don’t work is because for builders, operations is everything.

Operational reality drives everything else. In many companies, Ops and Finance hardly communicate. Ops is grinding through the street fight and finance is playing video games. The truth for all companies that are building, shipping and delivering physical products is that if you aren’t tuned into the operational realities, the data of product completion, delivery, and commissioning you are useless. You are an accountant not a finance leader. You are the high school buddy that conveniently disappears when the first punch is thrown.

What CEOs Must Understand About Cash Flow in Manufacturing Companies

Builders need a wing man (person) running finance. They need a “ride or die”, foxhole finance pro. If you’re a CEO or a founder and you don’t have one, find one. You can’t afford to build/train them. Your team’s either got your back or they’re in the back. Next week we’ll add an additional degree of difficulty and examine the challenges of all of this in global supply chains.

Although I use boxing and fighting as a metaphor in this blog post I neither encourage nor condone physical violence but I do also know what it feels like so yeah…