Does that sound counter-intuitive to you? It isn’t.
Most owners believe profit is the primary scorecard of a healthy business. It’s tidy. It’s familiar. It’s also incomplete — and often misleading.
I’ve seen profitable companies miss payroll.
I’ve seen profitable companies panic every quarter.
I’ve seen profitable companies die.
They didn’t fail because profit was low.
They failed because cash arrived too late.
First-Principles Reframe
Profit is an opinion. 😉Did you know that? On the other hand, cash is a fact.
Profit lives on paper. It’s shaped by accounting rules, timing, and estimates. Cash lives in the bank and either shows up on time or it doesn’t.
Here’s the distinction most owners blur:
- Profit measures performance
- Liquidity determines survival
You cannot pay people, suppliers, or taxes with profit. You pay them with cash — today, not eventually.
When owners obsess over margin while ignoring timing, they are optimizing the wrong variable.
A Simple Mental Model
There are only three levers that determine liquidity in an operating business:
- How fast customers pay you
- How fast you pay others
- How much cash is trapped between the two
That’s it.
Everything else — growth, margin, overhead — flows through those three levers.
You don’t run out of cash because you’re unprofitable. You run out of cash because the timing isn’t working.
A Grounded Example
Let’s look at a $10M distribution business.
- Gross margin: 28%
- Net profit is healthy on paper
- Growth is steady at 12% annually
The owner feels good. The P&L supports that feeling.
But here’s what’s happening underneath:
- Customers pay in 72 days
- Suppliers demand payment in 30
- Inventory sits for 55 days
That means every dollar of new revenue requires financing for nearly four months.
Growth doesn’t help here. It worsens the problem.
The faster they grow, the more cash they consume.
Nothing is “wrong” operationally. The business is doing exactly what it’s designed to do — convert optimism into anxiety.
Where Owners Get It Backwards
When cash tightens, most owners pull the same levers:
- Cut expenses
- Delay hiring
- Pause marketing
Those moves feel responsible. They also miss the root cause.
Liquidity problems are rarely solved by trimming overhead. They’re solved by fixing flow.
Flow lives in:
- Payment terms
- Billing discipline
- Inventory design
- Approval friction
- Internal habits around money
None of those show up clearly on a profit statement.
The Hidden Cost of Ignoring This
When liquidity is unstable, it leaks into everything:
- Decisions get rushed
- Discounts get offered to “bring cash in”
- Bad customers get tolerated longer than they should
- Owners stop thinking long-term
The culture feels it first. Then strategy. Then morale.
Eventually, the business becomes reactive — not because the owner lacks discipline, but because the system demands it.
A Calmer Way to Think About It
Healthy businesses design cash to be boring.
Not dramatic.
Not heroic.
Not dependent on last-minute saves.
Boring cash means:
- Customers know exactly when and how they pay
- Invoices go out immediately after products or services are delivered
- Exceptions are rare and visible
- No one is “surprised” by the bank balance
This doesn’t require complex dashboards. It requires clarity and follow-through.
A Quiet Test
If you want a fast read on your liquidity health, answer this without opening your accounting system:
- How much cash will be in the bank 60 days from now?
- Which customers will fund it?
- Which vendors will consume it?
If that feels fuzzy, the issue isn’t profit. It’s visibility and timing.
What Actually Improves Liquidity
Neither hacks nor tricks will. Just fundamentals done consistently:
- Clear payment terms that match your business reality
- Invoicing that happens immediately, every time
- Fewer exceptions, not better excuses
- A short weekly rhythm focused on cash movement
These aren’t exciting changes. They are stabilizing ones.
Stability creates options. Options create calm.
Quiet Close
Profit tells you if the business worked. Liquidity tells you if it can continue.
Most owners don’t need more growth ideas. They need fewer surprises.
When cash behaves predictably, everything else gets easier — including growth.
Thanks for reading…