“He who understands working capital understands growth.” That sounds almost biblical. Perhaps I should have written: “If your business is doing so well, why are you still broke?” Most of the time, the answer is working capital. Let me give you a few examples. “I know the owner.” Mama Zaabu used to run a high-end restaurant/bar before starting @modernliving256. The place was always busy. “Should we open another location?” “How about a pop-up in Kisementi?” Yet the owners were broke. Why? Clients would come in en masse, “spend a lot of money,” sweet-talk the owner and… not pay their bill. Classic case of selling to your friends. You have a pile of IOUs from clients. You are broke. “I can sell this.” Another classic working-capital trap. You go to the Canton Fair and discover all sorts of exciting products. Brand-new eco-friendly nail polish in 50 different colours. You happily call your accountant in Kampala: “Wire the money.” At this point, you’ve spent a few million shillings going to Canton, so obviously you believe you can sell. Geez, you even have an accountant. And maybe you can sell. The problem is that your system for selling eventually hits a ceiling. More products arrive than your sales engine can move. Your inventory balloons. You are broke. “We need to produce more and faster.” This one is typical of growing businesses. Your product is in high demand. Congratulations—you are already doing better than the vast majority of entrepreneurs. Hooray! Yet you are still broke, and your backlog keeps growing. Your obsession becomes adding more people and increasing production. You buy machines. You meet bankers and investors, who inevitably ask: “If you’re growing so fast, why are you still broke?” You start writing posts on X about how the ecosystem can’t support entrepreneurs. But there are really only two fundamental ways to deal with a persistent backlog: Increase capacity or increase prices. The longer you wait, the more your work-in-progress balloons. And you eventually need to ask a harder question: Are you actually making money on all those orders? “Well, client so-and-so made me drive across town to fix his bed for UGX 50k, and it burned two hours of my carpenter’s time.” There it is. You are charging too little per unit of time. Until you fix that, your work-in-progress keeps ballooning alongside your list of annoyed customers. You are broke. Whether your business is actually a money-printing machine often shows up in your working capital long before it shows up in your revenue numbers. Revenue can make you look successful. Working capital tells you whether the machine actually works. Until you understand it, and fix it, you can keep growing and still remain broke. That's it for today...