A business can be profitable on paper and unable to pay wages. This is among the most common causes of small business failure and it surprises people every time.
The distinction
Profit is revenue minus costs over a period, recorded when earned and incurred.
Cash is what is in the account today.
You record a sale when you invoice. You receive the money sixty days later. You pay your supplier in thirty. The profit is real and for thirty days you are funding it yourself.
Why growth makes it worse
This is the part that catches people. Growing means buying more stock, hiring sooner, and invoicing more – all of which consume cash before any of it returns.
A business growing quickly can run out of money precisely because it is succeeding.
What to watch
Days between delivering and being paid, which is the number that matters most.
Stock sitting unsold, which is cash on a shelf.
The gap between when you pay suppliers and when customers pay you. Narrowing that gap is the single most effective improvement available.
What actually helps
Deposits or partial payment upfront, which most customers accept if asked.
Shorter payment terms, and chasing them. A large share of late payment happens because nobody followed up.
Negotiating longer terms with suppliers, which is frequently possible and rarely requested.
The forecast worth keeping
A simple weekly projection of cash in and out for the next three months. Not accounting – a sheet. Almost every business that ran out of money would have seen it coming with one.