Opinions expressed by Entrepreneur contributors are their own.
This article is part of the Spend Smart series. Read more stories
Key Takeaways Profit doesn’t equal liquidity. A company can be profitable while still struggling to pay its bills, usually because of how cash moves through the business.
Underneath most cash flow problems is a poorly designed capital stack — the blend of funding sources that keep your business running (equity, retained earnings, debt and working capital facilities).
Founders must use working capital tools to smooth operations, match growth investments with long-term capital, keep a liquidity buffer and establish capital relationships before they need them.
For many founders, “profitability” feels like the finish line. You’ve built something that finally sells more than it spends. On paper, everything looks healthy, margins are up, costs are under control, and growth is steady.
And yet, your bank balance tells a different story. Payroll’s tight. Supplier payments are late. You’re constantly juggling timing to avoid a shortfall.
How can a profitable business still run out of money? The answer sits at the intersection of cash flow and capital design.
Related: Smart Business Owners Know the Difference Between Profit and Cash Flow. If You Want to Make Money You Should, Too.
Profit doesn’t equal liquidity
... continue reading