While being cash flow positive and profitable e at first glance, there’s a significant difference that is important to understand.

To function, you need operating cash flow to meet payroll, make rent and insurance payments, and handle the laundry list of other day-to-day expenses to keep business running as usual.

Many businesses use the accrual method of accounting, which records income and expenses when you earn or incur them — regardless of whether the cash has actually been exchanged.

If you’re sending out invoices to clients that may not pay those invoices for 30, 60, 90, or even 120 days, your real-time cash flow situation will look very different than your profitability — and you may find yourself without enough liquidity to keep your company running.

Let’s use a single invoice to illustrate this point. You land a huge opportunity with a wedding planner, who needs $15,000 worth of arrangements for an upcoming wedding. You invoice the customer on May 1 with a deadline of 60 days. You also have to pay your vendor $8,000 for the inventory (flowers) within the next 30 days. Читать далее →