For years, I have seen companies that, at least on the surface, seemed to be doing everything right. They were selling, turning inventory, negotiating with suppliers, and reporting positive results in their financial statements. However, every time you stepped away from Excel and looked at day-to-day operations, the feeling was very different: constant tension, dependence on banks, and a permanent struggle to keep cash flowing.
Some of my clients—import and trading companies—have lived exactly this dilemma. Their margins are naturally tight, as is common in trading businesses, but the real problem goes beyond that. Every commercial decision ends up being driven by liquidity. Not by strategy. Not by the market. But by available cash… or by the bank’s credit limit.
And that is where the silent mistake begins.
When the Numbers Look Good, but the Business Can’t Breathe
On paper, the business is profitable. The income statement confirms it. There are sales, there is gross margin, and with some discipline, even a positive EBITDA. For many people, that should be enough to say, “the business works.”
In practice, however, the story is very different.
Suppliers push for shorter payment terms.
Customers pay later than promised.
Inventory stays longer than expected.
And the bank… is always there.
Every month, credit lines must be renewed, invoices discounted, overdrafts negotiated. Not because the business is bad, but because cash flow does not follow accounting results. The company lives in a fragile balance, where any delay or small deviation can break the chain.
That stress does not appear on the income statement. But it is felt every single day.
The Most Common Confusion: Profitability Is Not Liquidity
This is the core of the problem.
Profitability measures whether a business wins or loses over time.
Liquidity measures whether the business can survive today.
They are not the same thing, yet many business owners mix them up.
It is like having a good salary but not enough cash to pay your credit card this month. In theory, you earn well. In practice, you are drowning.
A business can be profitable and still go bankrupt. Not because of lack of sales, but because of lack of financial oxygen.
The Invisible Financial Cost No One Looks At
In several of the companies I have advised, the bank was part of everyday life. Credit lines, factoring, short-term loans. Everything looked “normal.” It was simply assumed as part of the business.
But there is a cost that very few people pay attention to: the implicit financial cost.
Not just explicit interest, but also:
- lost early-payment discounts
- commercial decisions forced by cash constraints
- lower-margin sales just to collect faster
- growth limited by financial ceilings
This cost does not always appear as a direct expense. Yet it slowly erodes the value of the business. Every margin point used to finance operations is value that stops being created.
The company believes it is making money, but in reality, it is quietly transferring value to the financial system.
The Mistake I See Over and Over Again in Small Businesses
After many years in finance and management, certain patterns repeat themselves with unsettling precision:
Growing sales without controlling collections
More sales do not always mean more cash. Sometimes they mean a greater need for financing.
Using the bank as a permanent crutch
Credit should be a strategic tool, not a life-support machine.
Confusing survival with health
If the business “holds on,” it does not mean it is healthy. It only means it has not broken yet.
These decisions are not made out of ignorance, but out of urgency. And urgency is the enemy of strategy.
What Experience Taught Me (And What No One Explains Well)
For a long time, even understanding the concepts, I underestimated the real impact of liquidity. Not because I could not calculate it, but because until you see it affecting real decisions—people, suppliers, growth—you do not fully grasp it.
Liquidity is not just another indicator. It is the nervous system of the business.
When it fails, everything else is affected:
- negotiations
- pricing
- customer relationships
- risk-taking
A business with healthy liquidity decides.
An illiquid business reacts.
The Question Every Business Owner Should Ask Each Month
There is one simple, uncomfortable, yet revealing question:
How many months could my business survive if tomorrow I stopped collecting cash?
It is not meant to scare. It is meant to reveal the real fragility of the model.
Many businesses discover at that point that their real problem is not selling more, but collecting better, rotating faster, and financing less.
Final Reflection: Growing Is Not Always Moving Forward
In a world obsessed with growth, talking about liquidity does not sound glamorous. It does not sound like expansion or success. Yet liquidity is precisely what allows growth with judgment, without destroying value along the way.
I have seen businesses that grew fast and ran out of air.
And others that moved more slowly, but on solid ground.
The difference was not profitability.
It was liquidity.
Because in the end, a business does not die when it stops being profitable.
It dies when it stops breathing.
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