Title: My Business Is Profitable…So Why Am I Always Short on Cash?

Your business is making money. Sales look good. The income statement shows a profit. So why does it sometimes feel like there’s never enough cash in the bank?

It’s a question many small business owners ask, and the answer comes down to an important distinction: profit and cash flow are not the same thing.

How Can My Business Be Profitable but Have Cash Flow Problems?

Profit is what remains after your business subtracts expenses from revenue. Cash flow tracks the actual money moving in and out of your business, and timing can make a significant difference.

You might make a large sale today, but if the customer doesn’t pay the invoice for 30, 60 or even 90 days, that revenue may appear on your books before the cash reaches your account.

Meanwhile, payroll, rent, inventory, insurance, taxes and loan payments aren’t necessarily waiting.

That gap can put pressure on even a profitable business.

What Causes Cash Flow Problems for Small Businesses?

Growing businesses can actually experience some of the biggest cash flow challenges. You may need to purchase more inventory, hire employees, invest in equipment or take on additional expenses before the increased revenue arrives.

Seasonality can create similar challenges. A Michigan business may have several strong months followed by a predictable slower season, making cash flow planning especially important.

This is where knowing your numbers, and having a relationship with your banker, can make a difference.

When Should I Talk to My Banker About Cash Flow?

Ideally, before cash gets tight.

Your banker can help you look at your operating cycle, upcoming expenses, receivables and future plans to determine whether tools such as a business line of credit, equipment financing or another lending solution could make sense.

The goal isn’t simply to borrow money. It’s to understand your business well enough to plan for what’s coming next.

If your business is profitable but cash always seems tight, it may be time for a conversation.

Stop by Bank Michigan in Ann Arbor, Onsted, Brooklyn or Manchester and talk with a local banker about your business.

Better. Thinking. Banking.™