Ravi runs a small garment unit in Tiruppur. One morning, a big retail chain places the biggest order of his life: 10,000 T-shirts, worth ₹20 lakh. His profit on it will be about ₹3 lakh.
There’s one condition. The retailer pays 90 days after delivery.
To make the shirts, Ravi has to buy fabric now, pay his workers every week and keep the power on. By the second month, his bank account is empty. The rent is due. The order that was supposed to make him richer is about to shut him down.
On paper, Ravi is profitable. In real life, he’s broke.
Profit vs. cash
Profit is what’s left when you subtract costs from sales. It’s counted when the sale happens, even if the money hasn’t arrived.
Cash is the money actually in the bank today. It’s what pays salaries, rent and suppliers.
The gap between the two is time. Money goes out first, for materials and wages. Money comes in later, when customers pay. Accountants have an old saying for this: profit is an opinion, cash is a fact.
Think of a water tank
Profit is the water the municipality says will arrive this month. Cash is what’s in the tank when you turn on the tap.
The schedule can say “plenty”. If the tank is empty on Tuesday, you still can’t have a bath on Tuesday.
Why growth makes it worse
Here’s the strange part. Fast growth often drains cash. Every new order means buying more stock and paying more wages before a single rupee comes back.
That’s how a business can be growing, profitable and still run out of money. Many small businesses don’t fail because nobody wants what they sell. They fail because they ran out of cash while waiting to be paid.
Where you’ll spot it
- Small suppliers waiting months for payment from much bigger clients.
- Supermarkets that collect cash from shoppers today and pay their suppliers weeks later. Their customers fund the business for them.
- Advance bookings and deposits, from wedding caterers to builders. They aren’t just about trust. They’re about cash.
How to use it
Track three gaps:
- How long stock sits before it’s sold.
- How long customers take to pay you.
- How long you take to pay your suppliers.
Shorten the first two. Ask for advances, offer a small discount for paying early, hold less stock. Lengthen the third, politely. Then plan for the month when everything arrives late, because it will.
Sales are a promise. Profit is a calculation. Cash is what keeps the lights on.
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