Your Business Has Profits, But Where’s the Cash?

If you’ve ever looked at your company’s profit and loss statement and thought, “Well, we’re making money—so why is the bank account empty?” you’re not alone. This is one of the most common financial headaches business owners face.

On paper, your business is thriving. Revenue is up, profits look strong, and yet… you’re struggling to cover payroll. This gap between profitability and actual cash availability is a financial mystery that trips up even the most seasoned entrepreneurs.

The good news? There’s a reason this happens, and once you understand the causes, you can fix them before they cause real damage.

Let’s break down why your business can be “profitable” but still cash-poor—and how to turn things around before you find yourself in a cash crunch that feels tighter than a new pair of boots in August.

1. Profitability ≠ Cash Flow

First things first: profitability and cash flow are two completely different things.

• Profitability (as seen on your income statement) is an accounting concept—it tells you whether you’re making more money than you’re spending.

• Cash flow (as seen on your statement of cash flows) shows how much actual cash is moving in and out of your business.

A company can be profitable but still cash-poor if revenue is tied up in accounts receivable, inventory, or locked into capital expenditures. Let’s explore the common culprits.

2. Your Customers Are Taking Too Long to Pay

If you sell products or services on credit terms, your profit might look great—but if customers take 60, 90, or even 120 days to pay, your business is running on fumes in the meantime.

How to fix it:

• Tighten payment terms (for example, 30-day terms instead of 60+ days).

• Offer early payment discounts (such as 2% off if paid within 10 days).

• Charge late fees to slow-paying clients.

• Automate invoicing and follow up relentlessly.

Cash flow issues often start when business owners are too generous with credit. If you’re not a bank, don’t act like one—your customers need to pay up on time.

3. You’re Carrying Too Much Inventory

For product-based businesses, cash often gets stuck in inventory. If you’ve over-ordered or stocked slow-moving products, you’re sitting on cash that’s gathering dust instead of generating revenue.

How to fix it:

• Review inventory regularly and get rid of dead stock (discount or bundle it).

• Improve inventory forecasting so you don’t over-purchase.

• Negotiate better terms with suppliers (such as longer payment terms).

If your warehouse is full but your bank account is empty, your inventory management needs a serious tune-up.

4. You’re Spending Too Much on Growth

Scaling a business takes cash. The problem? Some businesses ramp up too fast, hiring aggressively or spending on expansion before they have the cash flow to sustain it.

How to fix it:

• Keep a cash buffer before hiring or expanding.

• Start small and scale up based on actual cash flow, not just projections.

• Consider financing options before you run out of cash, not after.

"Build it and they will come" only works in the movies. In business, you need a financial runway to support growth.

5. You’re Paying Bills Faster Than You Get Paid

This is one of the simplest cash flow killers—if your suppliers demand payment in 30 days but your customers take 60+ days to pay, you’re always behind.

How to fix it:

• Negotiate longer payment terms with suppliers.

• Align cash outflows with inflows whenever possible.

• Use credit lines wisely to bridge short-term gaps.

Managing payables strategically can keep more cash in your business without upsetting vendors.

6. You’re Not Watching Your Cash Flow Statement

Too many business owners focus only on the P&L, ignoring the statement of cash flows. If you’re not tracking cash movement, you’re driving blindfolded.

How to fix it:

• Review cash flow weekly (not just monthly).

• Forecast 3-6 months ahead to avoid surprises.

• Build a cash reserve to handle slow periods.

Your profit and loss statement tells you if you’re making money. Your cash flow statement tells you if you’ll stay in business.

7. You’re Pulling Too Much Money Out of the Business

Let’s be honest—sometimes, the problem isn’t external. If you’re paying yourself too much too soon, you could be draining cash your business desperately needs.

How to fix it:

• Pay yourself a reasonable salary based on actual cash flow.

• Leave a cash cushion in the business for slow months.

• Only take big distributions when you have excess cash, not just paper profits.

Your business isn’t an ATM—don’t treat it like one.

Final Thoughts: Profit is Just a Number—Cash is Reality

Many businesses look profitable on paper but struggle because their cash is tied up in slow payments, excess inventory, or poor financial planning.

The fix? Be proactive. Tighten up receivables, optimize inventory, manage spending wisely, and watch cash flow like a hawk.

Remember: "Revenue is vanity, profit is sanity, but cash is king."

Want to get a handle on your cash flow? Let’s talk. As a fractional CFO, I help businesses like yours turn paper profits into real cash—so you can grow without financial stress.