Crumbs Bake Shop celebrated record revenue. Thirty locations generating healthy profits on paper. Then they filed for bankruptcy because they couldn't cover the next lease payment.
The P&L showed success. The bank account showed reality. This gap between accounting profit and operational cash flow kills more businesses than bad products or weak marketing ever will.
Colin Sanburg has spent two decades building, buying, and turning around businesses. He's applied over 450 financial strategies to help founders escape what he calls the gap between profitable and solvent. His message is uncomfortable but necessary: most founders avoid the financial conversations that determine survival.
The Four Cash Monsters
Your accountant hands you a P&L showing healthy profit. You check your bank balance. The numbers diverge. This disconnect comes from four sources that consume cash while income statements stay clean.
Collection timing creates the first gap. Revenue recorded when work completes, but payment arrives weeks or months later. Your P&L shows money earned while your bank shows money missing. This phantom profit can't fund payroll.
Payment timing creates the second. Vendor obligations, contractor fees, supplier invoices. These flow out on schedule regardless of when customers pay. Cash exits predictably while inflows arrive unpredictably.
Inventory freezes cash for product businesses. Money sitting on shelves isn't money in accounts. You've already paid for materials, labor, manufacturing. Until those products sell and customers actually pay, that investment is trapped.
Debt service and capital expenditures hide completely from your P&L. New equipment fleets, loan payments, growth investments. These never appear on profit and loss statements. Founders celebrating record profit while wondering why the bank account is empty often discover they financed a growth wave their cash flow couldn't support.
Why Forecasting Matters More Than Reporting
Standard financial statements serve accountants, auditors, and tax purposes. They look backward at what already happened. They show profit according to accounting rules, not cash according to reality.
Founders think in operations. If I hire this person, what happens to my runway? If I make this investment, when do I hit a shortfall? Standard statements don't answer these questions.
Colin pushes founders past the common resistance that forecasting is impossible. Every publicly traded company forecasts across thousands of divisions. The difference isn't industry complexity. It's willingness.
The real power of forecasting isn't prediction accuracy. It's intention. Writing "ten million in revenue" means nothing. Writing "five million from one large contract plus twelve mid-sized deals" creates strategy. You now know what you're hunting. Marketing and sales approaches differ completely based on that mix.
Building for Exit Today
The best business to sell is also the best business to own. Professional operations, independence from the founder, financial clarity. These serve both outcomes. Premium valuation goes to businesses best in class at something specific.
Looking good from the outside while chaos reigns under the hood creates red flags that kill deals. Valuation reveals where risk lives today. Every risk factor is something you can address now. The founder building growth strategy around improving valuation drivers makes decisions differently than one chasing revenue alone.
Watch the Full Episode on Cash Flow Management with expert Colin Sanburg below:
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