Profitable companies go bankrupt. This is the single most important idea in company finance and almost nobody explains it to founders.
Profit is a statement about a period: what you earned minus what it cost, whether or not the money has actually moved.
Cash is a statement about your bank account right now.
They come apart because of timing. You record revenue when you deliver the work, but you receive the money when the customer pays — which might be 60 days later. Meanwhile salaries go out on the same day every month regardless.
Because cash is what kills companies, not profit. You can be profitable on paper for six straight months and still be unable to make payroll in month seven.
This is the most common way a growing B2B startup dies: growth increases the gap between doing the work and being paid for it, so the faster you grow, the more cash you need. Success accelerates the problem.
A B2B company signs three enterprise contracts in March, worth $60,000, on 60-day payment terms.
March P&L: $60,000 revenue, $35,000 costs, $25,000 profit. An excellent month.
March bank account: $0 received. $35,000 paid out in salaries and hosting. Down $35,000.
The money arrives in May. Between March and May the company must fund two more months of costs out of whatever it already had. If it had $50,000 in the bank, it is now dangerously close to zero — while being profitable.
This is not a hypothetical. It is the most common cause of death for companies that were working.
First-time founders often celebrate a big signed contract as though the money had arrived. The contract is a promise; the cash is the event. Between them sits your payroll.
The related error is ignoring payment terms during negotiation. A customer who insists on 90-day terms is asking you to lend them money for three months — and it is usually negotiable if you raise it before signing.
Two different numbers, updated monthly: what you earned, and what actually landed in the bank.
How much have you invoiced and not been paid? When is each due? That total is not money you can spend.
How many days between delivering work and being paid? Multiply by your monthly costs — that is roughly the extra cash the gap requires you to hold.
Ask for 30 days rather than 60. Offer a discount for upfront annual payment. Both are normal and both directly buy you runway.
Sounds trivial. Delayed invoicing is one of the most common self-inflicted cash problems in small companies.
Constantly, and especially whenever you sign a larger contract or move upmarket to bigger customers with longer payment cycles.
This matters far less if you are consumer or self-serve and get paid by card at the point of sale — then revenue and cash arrive together. It becomes critical the moment you invoice.
Apply this to your own startup in My Full Journey (free account).