A company can record a profit and still struggle to pay suppliers or salaries on time. This is not unusual when sales are growing quickly and working capital has to fund that growth.
Start with receivables
Sales booked on credit may not turn into cash for 30, 60 or 90 days—or longer. Review ageing by customer, disputed invoices, concentration and whether collection terms have quietly lengthened.
Look closely at inventory
Stock may be an asset on the balance sheet, but it cannot pay next Friday’s wages until it is sold and collected. Slow-moving items and large minimum-order purchases can trap cash even in a profitable business.
Understand payment timing
If suppliers must be paid in 30 days but customers pay in 90, the business finances the gap. A rolling weekly cash forecast makes that mismatch visible before it turns into an emergency.
Separate operating cash from capital spending
Buying machinery, fitting out a new premises or paying down borrowing changes cash without necessarily reducing profit by the same amount in the period. Owners should review cash flows, not only the profit figure.
Build a 13-week cash view
List expected opening cash, receipts and payments for each week. Include salaries, rent, tax obligations, loan instalments and committed capital spending. Update it every week and compare forecasts with actual collections.
Decide what can change
Potential actions may include negotiating payment schedules, reviewing credit controls, selling slow stock and sequencing expansion spending. Consider supplier relationships and legal obligations before making changes.
Do not treat a cash shortfall as proof of poor profitability; it may be a timing or working-capital issue.
If payment obligations may not be met, obtain appropriate financial and legal advice promptly.