Profitable businesses can still run out of cash because profit and cash are measured differently: profit counts income when earned, cash counts money when it actually arrives. The cash conversion cycle — the time between paying for stock or wages and being paid by customers — determines how much cash a business needs to operate. Growth makes this worse before it makes it better, since new sales usually consume cash before they generate it, catching many expanding businesses out. Two figures deserve weekly attention: debtor days and stock levels. The single most useful discipline is a 13-week rolling cash forecast, updated weekly, which gives early warning of problems while there is still time to act. This matters for succession too: a business that cannot reliably fund itself is far harder to sell or hand on to the next generation.
TLDR: Cash Flow Versus Profit: Why Profitable Businesses Run Out of Money
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