Opinion piece by Miguel Ángel Lacoma Cambra: There are companies that make money and yet are drowning
There are companies that make money and yet are still struggling.
Companies that increase sales, acquire new customers, and post positive profits, but still face constant financial strain at the end of each quarter. Companies that generate millions in revenue and yet feel there's never enough money in the bank.
And then the big question arises:
“If the company makes money… where is it?”
The answer is usually uncomfortable: profit is one thing, and the bottom line is quite another.
Because profit is an accounting concept. Cash flow is reality.
And many companies discover that difference too late.
One of the most common mistakes in business management is thinking that selling more automatically improves the financial situation.
It's almost never like that.
In practice, growth often requires upfront investment. And sometimes, the business owner shoots themselves in the foot to attract new customers: discounts, deferred payments…
This happens constantly in companies around us. Sectors like agriculture, fruit, construction, transportation, and certain other industries operate with tight margins and long collection cycles. The money goes out today, but comes back weeks or months later.
And in the midst of this time lag, we still have to pay, among other things, salaries, taxes and social security, to state the obvious.
That's where many problems begin.
Because growth consumes money.
In fact, there are companies that need more money the more they sell.
It may seem contradictory, but it's completely true. A company can be growing and emptying its bank account at the same time.
Imagine a company that sells on 60-day terms. Each new order involves buying materials, producing goods, paying wages, and incurring costs today to collect payment in two months. If sales increase rapidly, the need for cash also grows rapidly.
And if there isn't enough financial planning, growth ends up depending on crying to the bank and deferring VAT payments.
Often, business owners interpret this tension as "normal." They think the problem is that they still need to sell more.
But the problem isn't sales. It's how money moves within the business.
I've seen profitable companies with serious liquidity problems. And also companies with modest profits, but with an extraordinary capacity to generate cash.
The difference is usually not just in what they sell. It's in how they manage it:
- the charges
- the payments
- the stock
- the debt
- and growth
That's why more and more companies need to look at more than just the bottom line.
They need to understand their cash flow.
Because the profit and loss statement can show profits while the cash flow silently deteriorates.
And when tensions start to rise, dangerous decisions arise:
- delay payments
- finance investments with short-term debt
- cut key staff
- paralyze important decisions
- or depend entirely on the bank to operate
At that point, the businessman no longer works in peace.
He works putting out fires.
And the hardest part is that this often happens in businesses that, from the outside, seem to be working perfectly.
That's why growth, by itself, does not guarantee stability.
Growing without controlling the box can be extremely dangerous.
Because the more a company grows, the more money it needs to advance to sustain that growth.
And if the business doesn't generate enough money, there comes a point where financial strain ends up bringing everything to a halt.
Sometimes the problem is solved with adequate financing. Other times with better margins. Other times with inventory control. Or by reviewing payment terms. But the first step is always the same: understanding what's really happening with the money.
Because companies don't usually disappear due to a lack of customers.
They disappear due to lack of money.
Opinion piece. The opinions expressed in this text are the sole responsibility of its author and do not necessarily reflect the editorial line of this publication.
