Your company sells, the numbers look good on paper, but when it comes time to pay salaries or invoices, the bank account is empty. What is happening? Welcome to the world of cash flow, or the lack thereof.
Many profitable companies die due to lack of liquidity. Not because they don’t sell, but because the money moves in a direction and at a speed they didn’t anticipate. Let’s dissect the most common mistakes and how you can avoid them.
1. Confusing profitability with liquidity
If your company invoices 500,000 euros a year and has profits on paper, that doesn’t mean you have cash in the bank. Financial statements reflect income and expenses, but not the actual flow of money. You can sell a lot, but if customers pay late or don’t pay, the cash is not available when you need it.
Solution
- Do a cash flow analysis. Your long-term profitability is useless if you drown in the short term.
2. You charge late, you pay early
One of the biggest cash flow killers is offering customers long payment terms while you pay everything in cash. If you sell on 60-day terms, but your suppliers demand immediate payment, there’s a liquidity gap that can cripple your business.
Solution
- Negotiate with suppliers to extend terms.
- Offer discounts for early payment to customers.
- Use factoring or confirming to advance collections.
3. Having a stock that eats your money
If you have 100,000 euros in inventory that doesn’t sell quickly, that money is trapped in products instead of being in your bank account.
Solution
- Optimize inventory: buy what sells, not what you think will sell.
- Use just-in-time models to avoid overstocking.
- Sell old stock with offers before it becomes a liability.
4. Not planning taxes and fixed costs
The quarter arrives and VAT or corporation tax catches you without cash. Taxes are not a surprise, but many companies do not plan them.
Solution
- Create a separate account and set aside a percentage of each sale for taxes.
- Use financial management tools to forecast payments.
- Reduce unnecessary fixed costs before they become a structural burden.
5. Growing too fast and running out of gas
Hiring more staff, opening new lines of business or expanding without measuring your cash flow can be lethal. Uncontrolled growth kills profitable companies every day.
Solution
- Measure the return before expanding.
- Use external financing when growth requires intensive capital.
- Always maintain a liquidity cushion that covers at least three months of fixed expenses.
Conclusion: Without cash, there is no game
Your business can be successful in revenue, but without liquidity you are on a tightrope. Control cash flow, negotiate better, optimize payments and collections, and protect your liquidity.
At Fynance, we help companies solve cash flow problems and design solid financial systems so that the business not only makes money, but has it available when it needs it.
Ready to optimize your finances? Write to us and let’s talk.