You sold ₦10 million worth of goods this month.
Your accountant says the business made a profit.
Yet salaries are due on Friday, suppliers are calling for payment, and there is barely enough money in the account to restock.
So where did the money go?
This is where many business owners get confused. Sales are coming in. Customers owe money. The books may even show a profit. But the business does not have enough cash when bills are due.
There is no contradiction.
A business can be profitable and still run out of cash because profit and cash are not the same thing.
Profit tells you whether the business is making money after its costs and expenses. Cash flow tells you whether money is actually available when the business needs it.
That difference affects whether you can pay staff, buy stock, accept a large order, give a customer 60 days to pay, open another branch or take money out of the business.
Cash flow is the movement and timing of actual money entering and leaving a business.
The key word is timing.
A sale made today may not become cash for another 30, 60 or 90 days. Stock bought today may sit on a shelf for weeks. A profitable contract may require millions of naira to execute before the customer pays.
That is how a business can look healthy on paper and still struggle to meet its obligations.
Revenue, profit and cash are not the same
Suppose a company sells goods worth ₦10 million this month.
That ₦10 million is revenue.
Now suppose buying, producing and delivering those goods costs ₦7 million. Before other expenses are considered, there is a ₦3 million difference between sales and those costs.
That begins to tell you something about profit.
But suppose customers have paid only ₦4 million of the ₦10 million they bought.
The company does not have ₦10 million in cash.
It has collected ₦4 million.
The remaining ₦6 million is money customers owe the business. In accounting terms, it is a receivable.
The money may be due to the company, but until it is paid, it cannot fund payroll, replace stock or settle a supplier.
This is why an owner can see a profit in the accounts and still wonder why there is so little money in the bank.
The simplest distinction is:
Revenue tells you what you sold.
Profit tells you what remains after the relevant costs and expenses.
Cash tells you what money is actually available.
The IFRS Foundation’s IAS 7 Statement of Cash Flows separates cash movements into operating, investing and financing activities because cash cannot be understood simply by looking at profit.
For a small-business owner, the practical lesson is simpler.
An invoice is not cash.
A contract is not cash.
Stock is not cash.
And a profitable sale does not mean the money is available today.
Where cash gets stuck
Two businesses can record exactly the same sales and have completely different cash positions.
Business A sells ₦1 million worth of goods and receives payment immediately.
Business B also sells ₦1 million worth of goods but gives the customer 60 days to pay.
Both have made ₦1 million in sales.
Only one has the cash.
Business B still has to operate while it waits. Employees must be paid. Stock may need replacing. Deliveries must continue. Suppliers may expect payment long before the customer settles the invoice.
For firms dealing with larger organisations, these payment gaps can be significant. The World Bank’s 2025 Nigeria Enterprise Survey, which covered 1,043 firms, reported an average payment period of 45.3 days for firms receiving payment under government contracts.
That figure is specific to the firms surveyed, but it shows how a business can be forced to finance work long after delivery.
Inventory creates the same problem in another form.
Suppose a retailer has ₦5 million available and spends ₦4 million buying stock.
The business now owns millions of naira worth of goods, but most of its cash has been converted into inventory.
If the goods sell quickly, the money comes back.
If they sit in the shop or warehouse for months, the business can be well stocked and short of cash.
Inventory has value. It is not liquid.
The problem can be even more pronounced in manufacturing, where money may sit in raw materials, unfinished goods and completed products before a customer finally pays.
Bidemi Adebayo saw the problem while building what became Hadi Finance. The company started as a retail distributor, operating a warehouse in Abuja and supplying more than 1,000 customers. But its founders eventually realised that getting products closer to retailers was not solving the deeper constraint.
“We discovered that the main issue among retailers is how to access goods and credit to keep turning over as fast as possible,” Adebayo told TechCabal.
Receivables create a similar problem.
Imagine a distributor that supplies ₦15 million worth of products to three corporate customers, all on 60-day terms.
The company may now have ₦15 million in receivables.
But if only ₦700,000 is sitting in the bank and ₦2 million of obligations are due next week, the company has a cash problem.
Payment terms can be as important as price
Cash flow is shaped not only by when customers pay you, but also by when you must pay suppliers.
Suppose a supplier gives you seven days to settle an invoice, while your customer takes 45 days to pay.
Your business has to finance the gap.
Reverse the situation.
The customer pays within 14 days, while the supplier gives you 45 days.
You now receive cash before the supplier payment is due.
The profit on the sale may be the same.
The pressure on cash is not.
That is why payment terms matter in commercial negotiations.
A cheaper supplier demanding immediate payment may put more pressure on the business than a slightly more expensive supplier offering sensible credit.
The same applies to customers.
A large client that pays after 90 days may be harder for a small company to serve than several smaller customers who pay immediately.
The Association of Chartered Certified Accountants describes this through the cash operating cycle: the period between paying suppliers and eventually collecting cash from customers.
The longer that cycle, the more working capital the business needs.
Growth can make cash flow worse
More sales do not always solve cash problems.
Sometimes growth creates them.
For example, a catering company that normally handles ₦3 million worth of jobs every month.
Then it wins a ₦15 million contract.
The owner celebrates.
But fulfilling the contract requires ₦9 million upfront for food, temporary workers, logistics, equipment and other costs.
The client will pay 45 days after the event.
The company may make a healthy profit on the job.
But it still needs ₦9 million before that profit becomes cash.
Olagoke Balogun, co-founder of Nigerian healthy-food company So Fresh, captured the problem during a Credit Direct business session: “Growth eats cash.”
The point is not that growth is bad.
It is that growth has to be financed.
A company can win a large order, open another branch, increase stock or hire more people and weaken its cash position if the spending happens before the new revenue turns into collections.
Every major growth decision therefore needs two questions:
Will this make us money?
Can we finance it until the money comes back?
A business can answer yes to the first and no to the second.
Cash in the bank can give a false sense of security
A strong bank balance does not automatically mean a business is healthy.
Suppose a company is losing money but receives a ₦20 million loan.
Its cash balance rises immediately. The underlying business has not improved.
The cash came from debt.
If the operation continues losing money, that cash will eventually disappear and the loan will still have to be repaid.
The same thing can happen when an investor injects capital, the owner puts in personal money, or the business sells an asset.
All can increase cash without improving the company’s day-to-day performance.
A company may even appear cash-rich because it has delayed paying suppliers.
So when cash increases, ask where it came from.
Cash generated by normal operations tells a different story from cash supplied by lenders, investors or unpaid creditors.
Negative cash flow is not automatically bad either.
A manufacturer may buy new equipment. A retailer may build inventory ahead of its strongest season. A restaurant may fit out another location.
Cash falls because management expects those investments to produce future returns.
The issue is whether the spending is planned, affordable and likely to pay back.
A business investing deliberately is not in the same position as one losing cash every month because its prices are too low or its costs are out of control.
Some cash-flow problems are really management problems
Nigeria’s operating environment can put pressure on any business, but not every cash shortage starts outside the company.
Stephanie Anyamele, a chartered accountant and founder of Charles Ardor & Company, says “many businesses lack working capital discipline and operate without real cash-flow forecasting.”
Weak controls can turn ordinary business pressure into a recurring liquidity problem.
One company may blame customers when millions of naira are sitting in slow-moving stock.
Another may blame lack of funding when the owner regularly takes unplanned money out of the business.
Another may keep borrowing when the real problem is poor pricing. Another may be profitable but slow to invoice and collect.
The symptom is the same:
There is not enough cash.
The causes are different.
This is why borrowing should not be the automatic response to a cash shortage.
Debt can bridge a temporary timing gap in a healthy business.
It cannot permanently repair poor margins, excessive withdrawals, bad inventory decisions or a business that loses money on every sale.
BEA’s guide on separating personal and business money addresses one of the most common control problems in owner-managed businesses.
6 questions every business owner should be able to answer
You do not need to become an accountant to have basic cash visibility.
But if you run a business, you should be able to answer these questions without guessing.
How much usable cash does the business have today?
Not invoices. Not expected sales. Not stock.
Actual money.
How much do customers owe, and when is each major payment realistically expected?
Knowing customers owe ₦10 million is not enough.
You need to know who owes it and when the money is likely to arrive.
What major payments are due over the next four weeks?
Payroll, suppliers, rent, taxes, loans, inventory and other obligations.
How much money is tied up in inventory?
And how much of that inventory is moving slowly?
How much does the business owe suppliers, and when must those amounts be settled?
That tells you how much flexibility you have.
How much money is the owner taking out of the company?
If withdrawals happen whenever personal expenses arise, planning cash becomes difficult.
If you cannot answer most of these questions, the business has a visibility problem before anything else.
Watch the pattern before the crisis
Cash problems usually give warnings before the account reaches zero.
Customers are taking longer to pay.
Inventory keeps rising.
Suppliers are repeatedly asked for extensions.
Salaries are becoming harder to meet.
New customer deposits are being used to complete old jobs.
Routine expenses increasingly require borrowing.
Revenue is rising while available cash keeps falling.
The owner cannot say with confidence what payments are due over the next month.
One of these may be temporary.
Several happening repeatedly require investigation.
Instead of asking:
Why don’t we have enough money?
Ask:
Where is the money?
Is it with customers?
Is it sitting in stock?
Did it go into expansion?
Did the owner withdraw it?
Are suppliers being paid faster than customers pay?
Are margins too thin?
Is the business actually profitable?
Those questions begin to turn a vague cash problem into something that can be diagnosed.
Next in the BEA Cash Flow Series: How to Manage Your Business Cash Flow With a 13-Week Forecast.
