💰Learn Cash Flow Basics: Why Profitable Businesses Go Bust
Watch a profitable company run out of cash, then learn why. Leave with a 13-week cash forecast for a real business and the instinct to spot a crunch six weeks before it happens.
Phase 1Profit Is an Opinion, Cash Is a Fact
See why profit and cash are not the same number
Your invoice is not your bank balance
6 minProfit is what you've earned on paper. Cash is what's actually in the account. The gap between them is where businesses die.
Every dollar of cash comes from one of three doors
7 minCash flow has exactly three sources: operating, investing, and financing. Knowing which door each dollar walked through tells you whether the business is healthy.
The only line that proves the business is real
7 minOperating cash flow is the truth-teller of the three sections. If it's negative for too long, no amount of clever financing saves the company.
Meet RiverBuild: profitable, growing, and about to go bust
5 minA made-up custom-furniture company called RiverBuild looks great on paper. By drop 9, you'll have watched it run out of cash anyway — and you'll know why.
Phase 2Watching RiverBuild Grow Itself Into Bankruptcy
Trace a profitable company straight into bankruptcy
The hotel contract is killing the company
7 minRiverBuild's revenue doubled, but the hotel chain pays net-60 instead of net-30. Every dollar of growth is also two months of waiting.
The wood pile is eating the bank account
7 minRiverBuild ordered 45 days of reclaimed wood to fulfill the hotel contract. That inventory sits as cash, frozen, until each table actually ships and gets paid.
Suppliers want net-30. Employees want Friday.
7 minRiverBuild can stretch suppliers to 30 days. It cannot stretch payroll. The asymmetry is what makes the cash crunch real.
RiverBuild misses payroll
7 minOn April 15th, RiverBuild has $4,200 in the bank and $18,000 in payroll due Friday. The income statement still shows a profit.
What saves RiverBuild — and what would have prevented all of this
7 minRiverBuild survives by factoring its receivables and stretching suppliers. But the real fix happened weeks earlier, in a forecast nobody built.
Phase 3Cash Meets Working Capital and Unit Economics
Link cash flow to working capital and unit economics
A vendor texts: "Can you pay net-15 instead of net-30?"
8 minRiverBuild's owner just got the message. The vendor wants payment in two weeks. Customers still pay in 60 days. What's the right move?
Your bank account hits zero on Friday. Which lever do you pull?
8 minWorking capital is a knob with three handles — receivables, inventory, payables. Each one has a different cost and speed. Knowing which to pull and when is the difference between a tight week and a closed business.
The unit economics on your best product are lying to you
7 minProfit margin per unit looks fine. Cash margin per unit — after working capital is funded — may be terrible. Same product. Same revenue. Different survival math.
Read this DM and tell me how many weeks of runway
7 minAn owner DMs you: "Q2 was our best ever. $180K revenue, 22% margin. But we just took a $50K line of credit to make payroll." Your read should land in 30 seconds.
Phase 4Your 13-Week Cash Forecast
Build a 13-week cash forecast for a real business
Build a 13-week cash forecast for a real business
8 minToday you build the artifact RiverBuild's owner wishes they'd built in February — a row-by-row, week-by-week view of cash in, cash out, and the running balance for the next 13 weeks.
Frequently asked questions
- How can a profitable company run out of cash?
- This is covered in the “Learn Cash Flow Basics: Why Profitable Businesses Go Bust” learning path. Start with daily 5-minute micro-lessons that build from fundamentals to hands-on application.
- What's the difference between net income and cash flow?
- This is covered in the “Learn Cash Flow Basics: Why Profitable Businesses Go Bust” learning path. Start with daily 5-minute micro-lessons that build from fundamentals to hands-on application.
- What are the three sections of a cash flow statement?
- This is covered in the “Learn Cash Flow Basics: Why Profitable Businesses Go Bust” learning path. Start with daily 5-minute micro-lessons that build from fundamentals to hands-on application.
- What is the cash conversion cycle and why does it matter?
- This is covered in the “Learn Cash Flow Basics: Why Profitable Businesses Go Bust” learning path. Start with daily 5-minute micro-lessons that build from fundamentals to hands-on application.
- How do you build a 13-week cash forecast for a small business?
- This is covered in the “Learn Cash Flow Basics: Why Profitable Businesses Go Bust” learning path. Start with daily 5-minute micro-lessons that build from fundamentals to hands-on application.
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