🧰 Before You Begin
Clarify the decision framing: are you evaluating a new market entry, a struggling existing market, or both?
Gather historic data (if any): revenue, gross margin, opex, working capital balances, and one‑off launch or exit costs. For new markets, use benchmarks from similar geographies or segments.
You’ll also need strategic context: why this market matters, what success looks like, and any non‑negotiables from leadership.
Next, make your entry and exit criteria explicit. For example, “reach breakeven cash within 24 months,” “DSO within 10 days of group average,” or “no more than X% of group working capital tied up”. Align on your planning horizon – often 3-7 years for meaningful moves. Finally, ensure you have a simple modeling environment where you can run multiple scenarios side by side, not just a single “best guess” forecast.
Step-by-Step Instructions 🧮
Step 1 – Define Scenarios and Criteria Up Front
Start by writing down the three core scenarios: enter (or double‑down), fix/optimise, and exit. For each, sketch the high‑level shape of revenue, margin, and opex over time. Then attach your entry and exit criteria: minimum cash returns, acceptable volatility, and the maximum net working capital commitment you’re willing to tolerate.
Translate these criteria into model‑ready thresholds – for example, cumulative free cash flow over five years, peak cash draw in year two, or DSO limits. Getting this clarity early prevents the model from becoming a tool to justify a pre‑chosen outcome. It also turns a complex decision into a simple question: which scenario best satisfies the agreed criteria, and under what assumptions?
Step 2 – Build the “enter or Double-down” Case
For a new or expanded presence, model ramp‑up of customers, pricing, and volumes. Be conservative on speed; over‑optimistic curves are the fastest way to misallocate capital.
Include all upfront costs: local entity setup, sales and marketing, partnerships, and required product localisation. Most importantly, reflect working capital needs – inventory, receivables, and local cash buffers – using realistic working capital formulas for days sales, days inventory, and days payables
Show free cash flow over time, including Capex for facilities or tooling. Highlight peak cumulative cash outlay and peak working capital balances.
Then test whether this scenario clears your entry and exit criteria: does it reach cash breakeven fast enough? Is the cash at risk proportionate to the strategic upside? If not, the answer may be “not yet” rather than an outright no.
Step 3 – Build the “Stay and Fix” Optimisation Case
If you’re already in the market, build a scenario that focuses on operational improvement rather than expansion. Model gradual changes in pricing, mix, cost structure, and working capital management – for example, improving DSO through better collections or renegotiating payment terms. Many struggling markets become viable simply by fixing cash conversion.
Include targeted investments like automation, channel changes, or focused product bets, with their own cash profiles.
Contrast this scenario’s cash curve with the “double‑down” case: sometimes a modest optimisation path delivers similar cash over time with far less risk.
Check again against your criteria: can you reach acceptable returns and working capital metrics without scaling significantly? If yes, a “fix first, then decide” approach might be best.
Step 4 – Build the “exit” Scenario With Realistic Cost and Cash Friction
Exiting a market isn’t free; model severance, contract penalties, asset write‑downs, and customer transitions. Include the time it takes to unwind working capital balances – collecting receivables, selling or writing down inventory, and settling payables. For complex exits, link this to your sources‑and‑uses and transaction planning work so fees and working capital adjustments are visible.
Estimate the one‑off cash dip and the timing of any release of working capital as you run off the book. Exiting might produce an immediate cash boost, but could also require significant upfront payments before benefits show. Compare this scenario’s cash and working capital profile to the others. Does exit free up enough capital to redeploy into higher‑return opportunities, after all frictional costs?
Step 5 – Compare, Stress-test, and Decide
Bring the three scenarios into a single comparison view. Show cumulative free cash flow, peak cash draw, and peak net working capital for each. Overlay your entry and exit criteria – where does each case pass or fail? Then run stress tests: slower growth, worse margins, higher DSO, or regulatory shocks. You’ll quickly see which scenarios are robust and which are “fair weather only”.
Use this to frame a recommendation: for example, “exit now,” “fix for 24 months then revisit,” or “enter with tighter guardrails and staged investment.” Document what leading indicators you’ll track post‑decision (like working capital metrics or pipeline quality) that would trigger a re‑evaluation. This turns a one‑off strategy debate into a disciplined, repeatable process.
⚠️ Tips, Edge Cases & Gotchas
Beware anchoring on sunk costs – prior investments shouldn’t bias today’s decision. Focus on forward cash only. In some markets, regulatory or contractual obligations make exit harder than spreadsheets suggest; add buffers for legal and operational complexity. For joint ventures or distributors, clarify who truly controls working capital; improving terms may be easier or harder than your standard playbook assumes.
When entering frontier or experimental markets, your entry and exit criteria may need to be looser, but still explicit. In very high‑growth scenarios, tightening working capital metrics can be more valuable than chasing every incremental sale. Finally, remember that staying in a mediocre market consumes attention as well as cash – incorporate capacity constraints into your decision, not just dollars.
đź“Ś Example / Quick Illustration
Consider a regional market delivering $5m revenue at thin margins and poor cash conversion. Your “stay and fix” scenario shows modest margin improvement plus a 15‑day DSO reduction, turning the market breakeven on cash within two years. The “double‑down” case adds heavy sales and marketing, plus Capex for a local hub, with much higher working capital needs and slower payback.
The “exit” case shows a painful year‑one cash dip due to severance and contract penalties, followed by a release of inventory and receivables. When all three are laid out, you see that “stay and fix” meets your entry and exit criteria on cash and working capital balances with lower risk [529]. The decision shifts from emotional (“we can’t quit”) to analytical.
➡️ Next Steps
You now have a clear structure to evaluate whether to enter, stay in, or exit a market based on forward cash and working capital, not just top‑line ambition. Apply this framework first to your most marginal markets – where cash is tied u,p but strategic value is uncertain.
Once you’ve run a few cycles, codify your entry and exit criteria into a playbook and integrate the scenarios into your broader Capex and project evaluation toolkit. Over time, this discipline will free up capital from low‑return markets and redeploy it into higher‑confidence opportunities, compounding value without increasing risk.
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