Why Profitable Businesses Still Run Out of Cash and How to Stop It
JG High recommends this book: Vivid Vision by Cameron Herold
A few months ago, I sat down with a business owner who looked at me across Zoom and said:
“We just had our best quarter ever. The P&L shows $80K in profit. But I can’t make payroll this week. How does that make sense?”
This conversation isn’t unusual. In fact, it’s one of the most common frustrations I hear as a CFO. On paper, the business looks successful. In the bank account, it looks like a slow bleed.
The truth is: profit does not equal cash flow. And until you understand the difference, you’ll always feel like your money is disappearing.
4 Reasons Profitable Businesses Run Out of Cash
1. The Timing Problem
Your P&L shows revenue the moment you issue an invoice, but you don’t actually have that cash until the client pays. If your customers take 45 or 60 days to pay, you might look profitable while your bank account stays empty.
➡️ Example: A design firm invoices $20K in January. The income shows in January’s reports, but the client doesn’t pay until March. Meanwhile, the firm still has to cover salaries and rent in February.
2. Over-Investing in Growth
Growth is exciting, hiring new people, moving into bigger space, buying equipment. But growth eats cash before it produces returns. A profitable business can still hit a wall if it stretches itself too far, too fast.
➡️ Example: A restaurant adds a second location, which costs $200K in build-out. They’re profitable overall, but the second location bleeds cash for months before breaking even.
3. Debt Service Isn’t on the P&L
Loan repayments don’t hit your profit & loss statement. They show up on the balance sheet. Which means your P&L can look healthy while your bank account is being drained by loan payments every month.
➡️ Example: A construction company shows $50K profit. But with $12K in monthly loan payments, their actual cash available is a fraction of that number.
4. Owner Withdrawals
One of the fastest ways cash disappears is through owner draws. It’s easy to treat your business account like your personal piggy bank — but taking too much out too quickly leaves the business gasping for air.
➡️ Example: A business makes $100K in profit. The owner pulls $90K out for personal expenses. The following month, payroll bounces because the company has no working capital.
How to Fix It Before It’s a Crisis
✅ Build a Cash Flow Forecast
Even a simple 13-week spreadsheet forecast can show when cash is expected to dip. It gives you the chance to act before you’re in panic mode.
✅ Monitor Receivables Weekly
Don’t wait until month-end to chase invoices. Review open receivables every week and follow up before they’re late.
✅ Delay Non-Essential Spending
Just because profit is up doesn’t mean you have cash to spend. Align spending decisions with actual bank balance and forecast, not just the P&L.
✅ Set a Reserve Goal
Strong businesses keep 2–3 months of operating expenses in the bank as a cushion. It may take time to build, but even 2 weeks of reserves makes a huge difference.
Why This Matters
Bookkeeping tells you what happened last month. Cash flow management tells you if you’ll survive the next three. That’s the difference between a bookkeeper and a CFO. And it’s why profitable businesses hire us not just to “keep the books” but to turn profit into real, spendable cash flow.
Next Steps for Business Owners
If you’re still managing your books yourself:
👉 Download our Profit & Loss Google Sheet + Budgeting Excel Sheet to start tracking your numbers in real time.
👉 Using accounting software? Grab our QuickBooks Online Beginner’s Guide or our Xero Beginner’s Guide to fix the most common mistakes and set things up the right way.or strategy, not just cleanup? Let’s talk about my Fractional CFO services, where I help small businesses increase cash flow while still growing.
If you’re ready for a strategic partner:
👉 Book a consultation to learn more about our Fractional CFO Services and how we help businesses increase cash flow while still growing.
Affiliate disclosure: We may be compensated for purchases made via links in this article.
