Entrepreneurship and Business — Why a profitable business can still run out of money.
Profit is an opinion, but cash is a fact. Many profitable businesses fail simply because they run out of cash at the wrong moment.
Cash flow: The movement of money in and out of a business over time. Positive means more is coming in than going out.
If customers owe you money that has not arrived, but rent and payroll are due today, you can be profitable on paper and still unable to pay your bills.
Runway and burn rate: Burn rate is how fast you spend cash, usually per month. Runway is how many months you can last, equal to cash divided by burn.
Collect what you are owed faster and delay nonessential spending. Those are the two levers that most improve short term cash.
12 practice questions with explanations. Free, and no account is needed to start.