Working Capital Management in Maturity Phase



04 Jul 2018

Thank you for your sharing your feedback and experiences in managing the Working Capital in Start-up and Growth Phase. Let's now discuss the Maturity Phase.


Maturity is an inclusive term covering multiple aspects of human behavior that lead to greater social acceptance, better perception and higher contribution to the society. I personally believe that when one learns to respond to a situation rather than reacting to it, one may be termed as mature, irrespective of the age. It is perfectly possible that a person may be respond well to in a critical situation and react to some other stimuli. Gaining maturity is a continuous process.  


Families provide the infrastructure for growing children to travel on this path. Parents invest in good education of the children. Admit them to best possible schools, classes, collages and universities, ideally based on the child’s interest and capability. Parents are now friendly and work to develop multiple skills in children to make them agile to face the competition / market / world.


The family now has steadily increasing income and responsibilities. Parents typically start assigning smaller tasks to children. Trust them to spend their time and money wisely. Encourage them to learn from mistakes. Give them a free hand and watch them closely. Spend Quality Time together. Family starts traveling together to new destinations, gaining new experiences together.


The financial focus now shifts to managing rapidly increasing needs in terms of Education / Social needs, Gaining Experiences and Creating Corpus for future expansion and sustenance. The families use the need for basic up-gradation like bigger house / Cars to create long term assets. The Working capital requirement focus for a family now shifts to:


  1. Meeting the Development / Educational needs
  2. Meeting Social Needs
  3. Repayment of Loans for acquire Fixed Assets.
  4. Risk Coverage (Insurance is used as an effective way of creating corpus for future needs)

The net liabilities now include

  1. Development Expenses (Education / Experience Building)
  2. Social Expense
  3. Investments for future
  4. Monthly Fixed Expenses like Rent / Installments, Food, Basic Household Items, Travel, etc.  

The Net Assets now grow steadily. Families now focus of building social and professional network to propagate their growth. There is a tendency to invest surplus cash in creating long-term assets to meet future needs. Certain mid-term credit like home loan or car loan may be availed.  


How do the enterprises mature? If we take ability to respond rather than react, as the base criteria, then the processes of enterprises developing a resilient yet adaptive organizational framework (Processes / System) based on experiences may be termed as maturity process.  Let’s look at what happens in an enterprise at this stage:

  1. Product Portfolio grows
  2. Client base is established
  3. Internal Processes get set (intended / unintended)
  4. Base Revenue Level may be estimated
  5. Expansion into new regions / completing products / new product line is attempted
  6. Divergent perspectives amongst promoters on the priorities and way forward  
  7. Challenges in managing Human Capital and Working Capital

From Working Capital Assessment perspective, the Net Liabilities now include

  1. Monthly Expenses like Increasing Salaries, Statutory Payments and Partner Withdrawals  
  2. Business Development Expenses
  3. Product Portfolio Extension
  4. Resources Management (Team Building / Retention / Perks)
  5. Payment against long term liabilities

Risk Coverage, the most critical aspect at this stage, is normally not treated as a priority.


The Net Income / Revenue from new contracts now gets supplemented by the Maintenance Contracts and complementary services. This lead to certain degree of predictability about the Net receivables each month. A diligent Financial Controller can use this situation to structure the finances to manage immediate needs and create a pool to manage exigencies / future requirements.


Each enterprise follows its own path to Maturity. They gain unique experiences and develop own approaches. However, there are some common patterns / challenges faced by organizations while managing the Working Capital in this phase:


  • Financial Planning: Most of the promoters are technocrats / experienced professions from non-finance background. The business planning sessions typically focus on new Product / Service Developments, Revenue and Client Acquisitions. They tend to depend on external professional help to manage Statutory Requirements and Audits. They tend to hire Junior Accounting Professionals to maintain the data to be provided to External Consultants for statutory filings. Cash flow statement are based on Hope rather than estimates. The Expenses are not planned in advance, leading to temporary cash crunch. The Profitability Analysis for each product / project / service / engagement, if conducted, is either perceptive or subjective.

Enterprises need to engage Competent Finance professionals early in the Maturity Phase to Assess / Manage the Working Capital Requirement, Monitor Cash Flow and Conduct periodic Profitability Analysis.



  • Assessing and Managing Risks: The single biggest challenge that the growing concerns face is the Assessment of Risks and Creation of Mitigation Plans. Promoters tend to take challenging assignments from growth perspective. At times, these assignments (New Projects / Product Development) consume far more resources to complete than estimated and create a multiplying negative impact on the other projects / resource utilization / cash flow. The stress thus generated may result in imprudent financial decisions leading organization toward a downward spiral.

            Promoters, with their firm belief / obsession about their own offering, tend to ignore / under-estimate / over-estimate the competition or market shifts.  


Promoters need to engage profession services to conduct a detailed Risk Assessment and prepare the Mitigation Plan. 



  • Withdrawal / Reinvest: Promoters tend to sacrifice some of their personal financial gains and aspirations to start new venture. As the business starts growing, there is tendency to seek high withdrawals / expenditure to meet these aspirations. This creates a substantial stress on Cash Flow / Working capital. It is also observed that in certain cases, such situations lead to conflicts amongst promoters.

The promoters need to periodically discuss the financial aspects transparently, reach an agreement on individual contributions / resulting gain and structure the withdrawals. 



I believe this resonates with your experiences. Please share your feedback and experiences with me at charudatta@suhrud.co.in