The cash gap: why a profitable business runs out of money
There's profit but no cash in the bank — the classic trap of a growing business. Where cash gaps come from and how to see them coming.
«The reports say we're in the black, but there's nothing to pay suppliers with» — one of the most common phrases we hear from owners. Profit and cash are not the same thing, and the gap between them can kill even a growing company.
Why profit ≠ cash
Profit is calculated on an accrual basis: a sale is recognized at the moment of shipment, even if the client pays in 60 days. You bear the purchasing costs today, but you'll receive the revenue later. The P&L looks fine, but the account is empty.
- —Payment terms granted to clients freeze revenue in receivables.
- —Buying «for the future» turns cash into stock in the warehouse.
- —Fast growth demands ever more working capital.
- —Taxes and one-off large payments arrive unevenly.
How to predict a gap in advance
A cash gap is always visible in advance — if you have a payment calendar: a forecast of receipts and payments 4–13 weeks ahead. See that in three weeks obligations exceed receipts — and you have time to act: move a payment, speed up collecting receivables, arrange financing.
What to do
- —Keep a payment calendar and update the forecast at least weekly.
- —Manage receivables: due dates, reminders, client limits.
- —Don't freeze cash in excess stock — track inventory turnover.
- —Keep a cushion covering at least one payment cycle.
A cash gap isn't about a lack of profit — it's about cash being out of sync in time. BAS builds this forecast automatically from operational data, and the gap stops being a surprise.
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