Why can a profitable business still run out of cash?

This furniture maker earned a $20,000 profit, yet the bank balance sits near $5,000. The line drops early, stays flat for weeks, then jumps on day 90. Nothing is wrong with the profit. It's timing: the cash leaves first, and the customer's payment arrives much later.

On paper, this order looks healthy. The retailer owes $120,000, on net-60 terms. We spend $70,000 on materials and two $15,000 payrolls, so $100,000 in costs. Revenue minus costs leaves $20,000 of profit. We also start with $105,000 in cash. So far, nothing looks wrong.

Look at the same order on two timelines. In the profit view, accrual accounting records the revenue and its matching costs at one point, day 30, when the tables ship. In the cash view, money leaves on days 1, 14, and 28, and comes back only around day 90.

The cash didn't vanish. It changed form. Money went out to buy wood and pay staff, and became inventory. Shipping and invoicing turned that inventory into a receivable, which is a promise to pay. Only when the customer actually pays does it become cash again. Until then, it's still your money, just not spendable.

Look at the bars. On day 28, cash is only $5,000, but inventory is worth $100,000. On day 30, cash is still $5,000, while the shipped tables become a $120,000 receivable. Both are real assets on the books. But neither one can pay wages or rent.

Profit isn't cash: we recorded $20,000 of profit, yet only $5,000 sat in the bank. Revenue recorded isn't money collected: the $120,000 counts on day 30, but arrives on day 90. And bigger orders need even more cash upfront.

Now add a second $120,000 order next month. You'd spend another $100,000 before the first payment arrives, so growth demands even more cash upfront.

A small cash-basis business wouldn't record this income until day 90. But the bank balance still falls to $5,000 on day 28. The squeeze is real either way.

There are three general ways to bridge the gap. Deposits or shorter terms bring cash sooner but may cost bargaining power. A credit line costs interest and needs approval. Factoring, at an illustrative 3 percent, costs $3,600 on $120,000. This is general education, not advice.

Profit is recorded when the sale happens. Cash arrives only when the customer pays. In between, your money sits in inventory and receivables. So don't just watch profit. Watch how many days cash stays trapped in that loop, because that's the gap you have to fund.