Before You Run Out of Cash, You Run Out of Choices: Covenants and Room to Act
Most owners think about running out of money. Few think about running out of choices, which happens a long time earlier.
A leverage covenant breaches when EBITDA falls 12%. Cash is fine. Payroll is fine. But from that morning you no longer set the agenda: every material decision runs through a lender.
Cash might last to a 30% decline. The covenant binds at 12%. That eighteen-point gap is where strategy quietly turns into negotiation, and most teams have never measured it.
The question is not how much cash we have. It is how far performance can fall before someone else decides with us. A CFO should answer that from memory.
Buy headroom while it is cheap. Facilities arranged when results support them cost less than when results explain them. And spread maturities: everything refinancing in one year is a single point of failure.
Headroom has a price: facility fees, and lower leverage dampening return on equity. You are paying for something that shows no value in a good year, which makes it a hard argument to win.
It is still the right argument. The company that keeps its options chooses the timing when the cycle turns.
Turning these ideas into a disciplined monthly practice is core to the work of a fractional CFO. To see where your company stands today, start with the instant financial diagnosis, free during our founding period.
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