You could be profitable on paper and still go broke.
It sounds harsh, but it happens to businesses every day. Why? Because profit doesn’t pay the bills—cash flow does.
Too many small business owners focus on net profit while ignoring the timing of money in and out of their accounts. If your invoices aren’t getting paid fast enough, or your expenses hit before your income does, you’re going to feel the squeeze—even if your financials say you’re doing “fine.”
Let’s dig into why cash flow is the lifeblood of your business—and what you can do to manage it better.
The Difference Between Profit and Cash Flow
Profit is what’s left after you subtract your expenses from your revenue. It’s important—but it’s also often delayed, accrual-based, and not reflective of your day-to-day reality.
Cash flow is about timing. It tracks when money actually enters and leaves your bank account. If you’re profitable but all your revenue is tied up in unpaid invoices, you still can’t cover payroll, rent, or inventory. That’s how profitable businesses go under.
Common Cash Flow Pitfalls
- Late payments from customers – A 30-day invoice that gets paid on day 60 throws everything off.
- Lumpy revenue – Feast-and-famine cycles make it hard to plan.
- Poor expense timing – Recurring bills or seasonal costs hit when you’re least ready.
- Lack of reserves – No cushion means one unexpected hit can spiral fast.
- No forecasting – If you don’t know what’s coming, you can’t prepare.
How to Fix It
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Create a Cash Flow Forecast
Look ahead 3–6 months. Plot out your expected income and expenses by week or month. Know your cash position before it hits you. -
Tighten Receivables
Make your payment terms clear and short. Offer early payment incentives. Follow up like clockwork. -
Control Payables Strategically
If cash is tight, delay non-critical payments (without hurting relationships). Negotiate longer terms where possible. -
Build a Buffer
Aim to keep at least 1–2 months’ worth of operating expenses in reserve. More if your industry is seasonal. -
Review Weekly
Cash flow isn’t a once-a-month task. Make it part of your weekly rhythm. Keep your finger on the pulse.
You Can’t Manage What You Don’t Track
If you’re not watching your cash flow, it’s managing you. And not in a good way.
Getting a handle on this one area can reduce stress, protect your team, and put you in control of your future—not just reacting to surprises.
Ready to Get Your Cash Flow Under Control?
If this article hit home, you’re not alone—and you don’t have to figure it out solo. Key 5 of my 12 Keys to a Profitable Business series dives deeper into financial management and cash flow with worksheets, examples, and a full action plan.
Download it now or reach out if you're ready to get strategic with your numbers.