Cash flow problems destroy profitable companies and push individuals into bankruptcy. Learn how cash flow works, why profit lies, real‑life case studies, and how to take control before it’s too late.
Introduction
— The Lie You’ve Been Taught About Profit
Your business shows a
profit. Congratulations. You're dead.
Harsh but true.
The Stice brothers'
research reveals a terrifying truth: profit is an opinion; cash is a fact.
A profitable business can
starve to death with beautiful financial statements in its hands.
Profit looks good on paper.
Cash keeps the lights on.
And here’s the brutal
truth: cash flow problems kill profitable companies every single day.
Quietly. Ruthlessly.
Without apology.
You don’t go bankrupt
because your idea is bad.
You don’t collapse because customers don’t like you.
You die because you run out of cash.
Just like oxygen.
A man can own gold. But if
he can’t breathe, he dies.
1. Profit Is an Opinion.
Cash Is a Fact.
Let’s get this straight.
Profit is accounting.
Cash is survival.
Profit is calculated using
rules, assumptions, and timing choices.
Cash is counted in your bank account.
You
can report profit and still be unable to pay staff salaries, rent, loan
repayments, suppliers and taxes.
And when you can’t pay…
it’s over.
Imagine a man declared
“healthy” on paper.
But his heart has stopped.
That’s profit without cash.
2. The Greece Lesson — Debt
Wasn’t the Problem
Greece wasn’t poor.
Greece was just illiquid.
Greece debt was 170% of GDP
Japan debt: 230% of GDP
U.S. debt was even far higher
Yet Greece almost
collapsed.
Why?
No cash flow to meet
obligations.
Debt doesn’t kill.
Illiquidity does.
Same rule applies to
businesses.
Same rule applies to you.
3. How Profitable Companies
Still Go Broke
Here’s the dirty secret.
You can sell.
You can grow.
You can expand.
And still die.
Because cash doesn’t move
at the same speed as profit.
Say you sell ₦10 million
worth of goods today.
You record profit.
But customers pay in 60
days.
Suppliers want cash in 30 days.
This gap is your death
zone.
4. The Cash Flow Death
Spiral (Step‑by‑Step)
Step 1: You Invest
Cash goes out.
Step 2: You Hire
Cash goes out.
Step 3: You Buy Inventory
Cash will go out.
Step 4: You Sell on Credit
Cash does not come in
yet.
Step 5: Bills Arrive
Cash must go out.
Step 6: Panic
Loans. Delays. Defaults.
Step 7: Bankruptcy
Profit watches helplessly.
5. Home Depot — Three Weeks
from Death
In 1985, Home Depot was
bleeding.
Operating cash burn at $4
million/month
Expansion cash burn at $8
million/month
Total burn stood at $12
million/month
Cash left was just $9
million
Bankruptcy was 3 weeks.
Not 3 years. Not 3 months.
Three weeks.
Profit didn’t save them.
Cash discipline did.
What Saved Home Depot
They freed cash tied up in
inventory by reducing idle stock.
$55 million cash was preserved
They turned receivables into cash.
Faster.
They reduced expenses,
burned the fat and increased profitability per sale.
They gently extended supplier payments
without damaging relationships.
The transformation? From $3 million
weekly burn to $1 million weekly cash generation in one year.
From three weeks to live to becoming
Fortune 500's number 28 company.
From survival mode to strategic
planning.
6. Why Growth Makes Cash
Problems Worse
Here’s the cruel joke.
The faster you grow, the
faster you can die.
More sales equals more
inventory.
More inventory equals more cash out.
Before cash comes back.
Growth without cash
planning is suicide.
7. Operating Cash Flow —
The Lifeline
Operating cash flow answers
one question:
Does your business generate
real cash from daily operations?
If not, you are borrowing
time.
And time runs out.
8. The Operating Cycle —
Where Cash Gets Trapped
Operating Cycle equals the
inventory days plus collection days minus payable Days
Nike has inventory days of
91, collection days, 41 and payable days of 44.
Its cash gap is 88 days
(i.e., 91 + 41 – 44)
Nike must fund 88 days of
operations with cash.
Fail here, and profit won’t
matter.
9. McDonald’s — Cash Flow
Royalty
McDonald’s wins.
Why?
Inventory turns in approximately
7 days
Cash is collected instantly.
Suppliers paid in approximately
58 days
Cash comes in before cash
goes out.
That’s dominance.
That’s living the life of a
cash king!
10. Free Cash Flow — The
Ultimate Truth
Free Cash Flow is Operating
Cash Flow less Capital Expenditure
Free cash flow tells you:
- Can you survive?
- Can you grow?
- Can you sleep?
11. General Motors — Death
by Cash Flow
In 2005, GM’s free cash was
-$25.0 billion.
-$19.7 billion, $0.2 billion
and -$19.6 billion in 2006, 2007 and 2008 respectively.
No company survives that.
GM didn’t.
The 2009 bankruptcy wasn't a
surprise—it was a mathematical certainty.
But GM resurrected.
It returned to positive
free cash flow.
GM lived again.
Cash decided life or death.
12. Individuals Die the
Same Way
Personal bankruptcy isn’t
about income.
It’s about timing.
Timing of cash.
Salary comes monthly.
Bills come daily.
Miss the timing.
You fall.
13. The 30‑Day Cash
Smart operators forecast
cash daily.
- What’s coming in?
- What’s going out?
- What’s missing?
Cash control is calm.
Cash ignorance is chaos.
14. Practical Cash Flow
Calculation Example
If:
- Monthly expenses = ₦3,000,000
- Cash balance = ₦6,000,000
Your survival equals 2
months.
Not profit.
Not hope.
It’s pure math.
15. Habits That Save
Businesses and Lives
1.
Cash
forecasting
2.
Tight
collections
3.
Inventory
discipline
4.
Controlled
growth
5.
Emergency
buffers
Boring?
Yes.
Effective?
Absolutely.
Conclusion — Cash Is
Freedom
Profit flatters.
But cash frees.
Cash lets you breathe.
Cash lets you think long‑term.
Cash buys peace.
Ignore cash flow and it
will destroy you.
Respect it, and it will
serve you.
Call to Action
Start today.
Track your cash.
Forecast your next 30 days.
Fix leaks.
And come back to this blog.
Because money isn’t just
numbers.
It’s survival.
Inspired by Derrald Stice,
Earl K. Stice & James D. Stice (2017): “Cash Flow Problems Can Kill
Profitable Companies”
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