Profitisn’t cash.
Profit vs Cash Flow Simulator: Can a Profitable Business Run Out of Cash?
Set up a business, then watch twelve months play out. The default business is profitable every month and still runs out of cash. Try paying suppliers later, or getting paid sooner.
How it works
Each month, profit is sales minus the cost of goods and fixed costs. Cash only moves when customers actually pay and when you actually pay suppliers, so with 60-day customer terms, the sales from month 1 arrive in month 3. Meanwhile stock, rent and wages leave the bank every month.
Cash this month = customer payments received − supplier payments made − fixed costs
The faster you grow, the more cash is tied up waiting, which is why fast-growing businesses often need a loan or overdraft even when they are profitable. Read the full lesson in cash flow management.
Common questions
Can a profitable business run out of cash?
Yes. If you pay for stock, rent and wages before customers pay you, the bank balance can fall below zero while every month shows a profit. Growth makes it worse because each month’s larger sales need cash up front.
How do I fix a cash gap?
Get paid sooner (deposits, shorter terms, card payments), pay suppliers on the terms you agreed rather than early, hold less stock, or arrange a line of credit before you need it.