The EBITDA Mirage

EBITDA looks clean. It’s easy. It shows up in every pitch deck and board slide. And it’s dead wrong — at least if you think it tells you anything about actual cash.

Here’s the trap: founders often lean on EBITDA because it’s a known quantity — a proxy for cash flow from operations. But when the actual cash story diverges, the blind spot can be brutal. Suddenly, you’re missing targets, running short, and wondering how your “profitable” business is low on cash.

The culprit? Working capital. It’s the part of the cash story EBITDA conveniently skips. And if you’re not modeling and managing it, you’re not doing FP&A — you’re just reciting numbers.

This post unpacks the mirage, explains the mechanics, and shows how smart FP&A turns vague confidence into actual clarity.

The Real Problem — EBITDA ≠ Cash Flow

EBITDA is useful. But using it as your north star for cash planning is like driving with your high beams off — you’ll miss what’s right in front of you.

Why it fails:

• It ignores working capital movements — no tracking of how long customers take to pay or how much cash is tied up in inventory.
• It leaves out timing mismatches — EBITDA counts income as earned, not when it hits your account.
• It creates false comfort — looks healthy on paper while cash is quietly draining.

Common symptoms:

• You hit your revenue goals but still can’t make payroll.
• You raise capital expecting 18 months of runway — and burn through it in 11.
• You’re surprised by vendor payment crunches, even though “margins are solid.”

The bigger your business gets, the bigger this delta becomes. We've seen cases where unmodeled NWC swings cost 20%+ of EBITDA. That’s not a rounding error — that’s a boardroom problem.

Reframe — Model Cash, Not a Proxy

Here’s the shift: stop treating EBITDA as the finish line. Start treating it as a checkpoint.

The real destination? Cash flow from operations. That’s what pays your bills, funds growth, and determines how much real runway you have.

To do that, you need to model the mechanics of Net Working Capital (NWC):

• Accounts Receivable: How fast are you collecting?
• Inventory: Are you over-ordering and cash-stuffing shelves?
• Accounts Payable: Are you optimizing your payment terms?

This isn’t just accounting — it’s operational FP&A. It’s about:

• Understanding the flow of cash through your business
• Mapping how decisions on sales, ops, and vendor management impact that flow
• Building a model that tells you when you’ll run short, not just if

When EBITDA says you’re rich but your cash says you’re broke, it’s not a mystery — it’s mismanagement.

What Good Looks Like

Clarity comes when your FP&A connects the dots between operations and cash.

In practice, this looks like:

• Cash-flow-centric modeling — where each revenue assumption triggers AR impact, inventory needs, and AP outflows
• Rolling forecasts that show NWC shifts month-by-month
• Dashboards that highlight DSO (days sales outstanding), inventory turns, and AP aging alongside your P&L

What changes:

• You know your real cash runway — not just what your last fundraise slide said
• You can make decisions faster — because your model reflects operational reality
• You earn board confidence — by showing mastery over the real levers of your business

This is what real FP&A does: it turns static numbers into strategic clarity.

Conclusion

The next time someone asks if you’re profitable, ask back: "On EBITDA, or on cash?"

Founders who lean too hard on EBITDA are operating on lagging signals. If you want to lead — especially in markets where capital is expensive and time is tighter — you need to know how money actually moves through your business.

FP&A isn’t about building prettier models. It’s about building useful ones — ones that surface risks, reveal leverage, and help you avoid expensive surprises.

Skip the mirage. Go for the real thing.