Cash flow is the plot twist

Imagine having more than 100 employees.

Now imagine knowing those employees have families. Rent. Mortgages. Groceries. Car payments. Children. Lives that depend, at least in part, on the paycheck your company promised them. And you care about them.

Now imagine your customer hasn’t paid you. Not a few days late. More than 90 days late.

You’ve already dipped into your reserves. You’ve already put your own money into the business. You have contracts. You have work. You have employees doing that work.

But payroll is coming. And the money isn’t there.

That was me.

I remember being on the floor, crying in the shower, begging a customer to pay an invoice because I had people depending on me.

From the outside, you might have looked at my company and thought: she’s doing great. You wouldn’t have seen that scene.

The scene nobody sees

Business stories usually show us the contract being won. The handshake. The new employees. The expanding company. The celebration.

They rarely show the owner looking at the bank account three days before payroll thinking: how am I going to make this work?

It isn’t very cinematic. But it is very real.

I was talking with a girlfriend recently whose business looks successful from the outside. They’re doing good work. Articles have been written about them. And yet one of the things they’re worried about? Making payroll.

Stop assuming that a business that looks successful has plenty of cash sitting in the bank. Those are two very different things.

Profit and cash are not the same thing

This is one of the most important financial lessons an owner can understand.

Profit tells you whether the business generated more than it spent over a period of time. Cash flow tells you whether money is actually available when you need it. Those two things can tell very different stories.

Imagine you complete a $100,000 contract. Great. But before your customer pays you, you have to cover labor, materials, equipment, software, insurance and other expenses. Then the customer has 30, 60 or 90 days to pay.

That $100,000 may look wonderful on your sales report.

But you can’t make Friday’s payroll with an unpaid invoice.

Profit looks good on paper. Cash pays people.

A business can have strong sales and still experience a serious cash shortage because the timing of money coming in doesn’t match the timing of money going out. That gap matters.

Growth can make the problem bigger

Here is where things get really interesting. Suppose sales double next quarter. Celebration, right? Maybe.

Because growth often requires you to spend money before growth pays you back. You may need to hire people. Buy inventory. Lease equipment. Increase production. Pay vendors. Add software. Expand facilities. Increase insurance. Bring in contractors.

And those expenses may arrive long before the customer’s payment does.

Sometimes the question isn’t “can we win this contract?” It’s “can we afford to perform this contract while we’re waiting to get paid?”

That is a very different question.

Know your cash gap

Before taking on significant growth, I want owners asking themselves:

That last question can be uncomfortable. Ask it anyway. Because you don’t want to discover your cash gap when payroll is three days away.

Sometimes the deal needs to change

A cash-flow problem doesn’t automatically mean you have to walk away from a good opportunity. Sometimes you need to redesign the deal.

This was one of the hardest lessons for me to learn.

Winning the business is only the first decision. Funding the work until you get paid is another.

And by the way, I made payroll

Every single time. I was never late.

But I’m not going to pretend it wasn’t stressful, and that experience taught me some lessons I carried forward.

One thing I did with this particular client was charge the late fee specified on my invoice whenever they paid late. And they were always late. But it was worth it.

Eventually, you have to stop treating a customer’s chronic late payment like a surprise and start planning for it like the pattern it is.

If you have customers who pay slowly, tighten your payment process.

And for a large contract, ask one more question before saying yes:

How much of this customer’s work can I afford to finance while I wait for them to pay me?

Because that’s essentially what you’re doing when you’ve already paid your employees, vendors and expenses while the customer’s money is still sitting somewhere else.

Know the gap before you grow into it

Growth can be wonderful. I want businesses to grow. But growth can also consume cash before it produces cash.

And sometimes the business that looks like it’s winning from the outside has an owner somewhere behind the scenes trying desperately to hold everything together. I’ve been that owner. I know what that feels like.

So when the next big opportunity arrives, celebrate it. Then sit down and run the numbers. Ask when the money comes in. Ask when the money has to go out. Ask what happens if payment is late. And know exactly how you’re going to finance the space between those two dates.

Because there is a world of difference between “this is a profitable opportunity” and “we can afford to deliver it.”

Know the gap before you decide to grow into it. And believe me — you want to answer that question at the conference table. Not crying on the floor of the shower.