A business can post a healthy profit for the quarter and still be unable to pay its electricity bill.
It sounds contradictory. It isn’t.
Profit and cash flow are two different stories told about the same business.
Profit: recognized income minus recognized expenses
Cash flow: the actual money moving in and out of your bank account.
One measures performance. The other measures survival.
Five reasons a “profitable” business finds itself short on cash:
1. The customer hasn’t paid yet.
2. Your cash is sleeping in the warehouse.
3. Your expenses arrive before your income does.
4. You’re growing faster than your cash can follow.
5. Debt service is quietly draining your liquidity.
A practical cash flow management routine:
Review the following on a regular, non-negotiable basis:
– Opening cash balance
– Expected customer receipts (by date, not by hope)
– Supplier payments and operating expenses
– Tax and debt obligations
– Closing cash balance and any projected shortfall
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