Cash flow

Profit is an accounting opinion; cash flow is a fact. A business can be profitable on paper and still fail because customers pay in ninety days while suppliers demand thirty. Positive cash flow means more money arrived this month than left.

Most self-made wealth comes from owning things that throw off cash every month, then using that cash to buy more of them. It is a slower story than a startup exit, and a far more common one.

Growth is what usually causes the crisis. An e-commerce business that pays for stock sixty days before it sells needs more cash the faster it grows: adding 20% a month to a $50,000 stock order locks up another $10,000 every month, money that is already spent and not yet earned. Profitable and out of cash at the same time is the ordinary way small businesses die.

The remedies are unglamorous and they all work: deposits before starting, invoices sent the day the work ships rather than at month end, annual plans paid up front, and a credit line arranged while you still look like you do not need one. The number to watch is the gap between paying a supplier and being paid by a customer, because that gap is what you are financing.