Financial Strategy
Profitable on paper, short of cash in the bank
“We are profitable, but cash is always tight.”What owners tell us
The situation
Signs you are facing this
- The profit and loss shows a profit, yet salaries and VAT dates cause stress
- Customers pay late while suppliers want paying on time
- Overdraft use climbs even in good months
- Stock builds up faster than sales
The situation
Profitable on paper, short of cash in the bank
Driver 1
Money stuck in receivables
Sales are booked as profit long before customers pay.
Driver 2
Money stuck in stock
Buying ahead ties up cash that the business needs for running costs.
Driver 3
No forward view
Without a 13-week forecast, shortfalls are found when they arrive.
- 1
Diagnose
Map the cash cycle
Measure days to collect, days to pay and days of stock.
- 2
Design
Build a rolling forecast
Week-by-week cash view, updated from actual bank data.
- 3
Embed
Release working capital
Credit terms, collection routine and stock levels set to match.
- A rolling 13-week cash forecast
- Cash cycle map: debtor, creditor and stock days
- Working capital release plan
- Weekly cash dashboard
Try it on your numbers
See how growth absorbs your profit.
Fixed here: NPR 10 crore sales, 22% gross margin, 6% net margin. Change every input in the full calculator.
From profit to cash
This year, NPR
- Net profit for the year+NPR 60.0 lakh
- Less: more owed by customers−NPR 56.9 lakh
- Less: more stock on hand−NPR 59.2 lakh
- Add: more credit from suppliers+NPR 14.8 lakh
- Cash from operations−NPR 41.3 lakh
- Cash conversion cycle
- 180 days
- Cash tied up in working capital
- 4.39 crore
- Growth profit can fund
- 16% a year
The business makes NPR 60.0 lakh of profit, but growth absorbs NPR 1.01 crore into customer balances and stock. Cash from operations is −NPR 41.3 lakh: the profit is real, the cash is not there.
At these settings, profit alone can fund about 16% growth a year. Faster than that, the difference has to be borrowed or invested.
Illustrative. Assumes balances move in line with sales and that profit is kept in the business. Leaves out tax timing, depreciation, capital spending and loan repayments, which a real cash forecast includes.
Start this week
- Map customer-level debtor days weekly
- Review supplier payment cycles against collection lag
- Eliminate dead stock tied up in godowns
- Establish rolling 13-week cash projections
Common questions
Why is my business profitable but has no cash?
Profit is recorded when you invoice, cash arrives when the customer pays. Growth, slow collections, heavy stock and loan repayments all widen that gap.
What is a cash-flow forecast?
A week-by-week or month-by-month projection of money coming in and going out, so you can see a shortfall before it happens and act early.
Related situations
- “Our year has a few strong months and a long quiet stretch.”Seasonal business, steady obligations
- “Our bank limit is up for renewal and we are not sure the numbers will pass.”Bank limit renewal and covenant pressure
- “We are raising money and our numbers will not survive an investor's questions.”Raising money, but the numbers are not investor-ready