01 Profit and cash move at different times
You earn profit when you make a sale. You get cash only when the customer actually pays. If customers pay after 60 days, your profit is real but your cash is stuck with them for 60 days.
Meanwhile rent, wages, electricity and your supplier want cash now. That gap is where most small businesses get into trouble.
Example (hypothetical numbers, not data): a trader buys goods for ₹2,00,000 in cash in April and sells them to shops for ₹2,50,000, payable in 60 days. On paper the profit is ₹50,000. But in April and May his account is ₹2,00,000 lower, and he still owes ₹15,000 rent and ₹20,000 wages each month. Unless he has ₹70,000 set aside for those two months, he is short of cash while being profitable.
02 Things that eat cash but do not show as costs
Several payments reduce your cash without reducing your profit. Watch them closely.
- Loan principal repayments (only the interest is a cost).
- Buying a machine or vehicle (its cost is spread over years as depreciation).
- Stock sitting in the godown.
- Credit you give to customers.
- Tax you pay before the customer has paid you.
- Money you take out for your household.
03 Fast growth can be the most dangerous time
A big new order feels like good news. But you must buy material and pay workers before the buyer pays. The bigger the order, the more cash you need upfront.
Before accepting a large order, write down when each rupee goes out and when each rupee comes in. If the gap is too wide, ask for an advance, agree shorter payment terms, or arrange working capital first.
04 Keep a simple cash plan
Make a table with 13 columns: this week and the next 12 weeks. In each column, write the cash you expect to receive and the cash you must pay. The last row shows the balance left each week.
Any week where the balance goes below zero is a warning you can act on now, not a surprise later.