Hit your revenue target but can't make payroll? You're facing the financial gap. Learn how to identify it and close it with three practical strategies.
You hit your revenue target last month. The numbers look good on paper. Your P&L shows profit.
So why are you lying awake at 2 AM wondering how you'll make payroll on Friday?
If you've ever said, "I'm bringing in lots of revenue, but I don't have any money," you're not losing your mind. You're experiencing the financial gap in action—and it's one of the most common frustrations for business owners who are growing broke instead of growing profits.
The good news? Once you understand what's happening, you can fix it. And you don't need a finance degree to get there.
Here's the disconnect that trips up even experienced business owners: profit and cash flow aren't the same thing.
Profit is what's left after you subtract expenses from revenue. It lives on your profit and loss statement. It's a score you keep on paper.
Cash flow is the actual money moving in and out of your bank account. It's what pays your team, covers your rent, and keeps the lights on. Cash flow tells you whether your business can survive while it works.
You can be profitable on paper and still run out of cash in real life. That gap between what you've earned and what you can actually spend? That's your financial gap.
I learned this the hard way early in my career. I remember staring at a P&L that showed a healthy profit margin while my checking account was dangerously close to empty. The invoices were out. The work was done. The revenue was "mine." But the money? Still sitting in my clients' accounts, not mine.
That's the gap.
The financial gap is the timing difference between when money comes in and when money goes out.
Let's say you bill a client on the 1st with net-30 terms. You won't see that payment until the 31st—if they pay on time. Meanwhile, you've got payroll every two weeks. Rent is due on the 1st. Your software subscriptions auto-renew on the 15th. Supplier invoices come in with net-15 terms.
When your receivables take longer to collect than the time between payrolls—or aren't collected as fast as your bills are due—you run out of money even when you're technically profitable.
That difference in timing is the gap.
And it gets worse if you carry inventory. Every product sitting on your shelf is cash you've already spent that hasn't turned back into cash yet. The longer it sits, the wider your gap becomes.
Here's what this looks like in practice:
Accounts Receivable: $50,000
Inventory: $20,000
Accounts Payable: $15,000
With these receivables and inventory, it looks like you have $70,000, so paying $15,000 in bills shouldn't be a problem, right? Wrong. Receivables and inventory aren't actually cash you can spend. That $50,000 in accounts receivable is money customers owe you but haven't paid yet. That $20,000 in inventory is product you've already paid for but haven't sold yet. Neither one pays your bills today.
If those receivables take 45 days to collect and your payables are due in 15 days, you're about to hit a cash crunch—even though you're profitable on paper.
The gap isn't a character flaw. It's a math problem. And math problems have solutions.
You can't fix what you can't see. Start by comparing the timeline of your receivables against your payables and payroll.
Pull your accounts receivable aging report. How long does it typically take customers to pay you? Are most invoices paid in 15 days? 30? 60? Is anyone pushing past 90 days?
Now look at your accounts payable and payroll schedule. When are your bills due? When does payroll hit? What's your typical payment cycle? Are you paying vendors in 15 days while waiting 45 days to collect from clients? Is payroll due every two weeks while your average collection time is 60 days?
That difference—the number of days between when you pay out and when cash comes in—is your financial gap.
If you carry inventory, factor that in too. How long does product typically sit before it sells? That's cash tied up that you can't use to cover payroll or rent.
Once you see the gap clearly, you can decide which lever to pull.
You've got three main options for shrinking your financial gap: speed up collections, slow down payments, or move inventory faster.
Speed up collections. This is usually the fastest path to freeing up cash. Tighten your invoicing process. Send invoices immediately when work is complete, not at the end of the month. Follow up on overdue invoices within 48 hours, not when you remember. Consider offering a small discount for clients who pay within 10 days. Shorten your payment terms from net-30 to net-15 for new contracts.
Even small changes here can free up thousands in working capital. If you're a $500,000 business and you cut your average collection time from 45 days to 30 days, you've just freed up roughly $20,550 in cash.
Let's walk through where that number came from:
That's $20,550 in working capital that was locked up in receivables that's now available to cover payroll, pay vendors, or invest back into your business.
Renegotiate supplier terms. If you can't speed up collections, see if you can slow down payments—legally and ethically, of course. Talk to your key suppliers about extending payment terms from net-15 to net-30. Many vendors would rather give you more time to pay than lose your business. Just make sure you're still paying on time under the new terms. Burning vendor relationships to solve a cash problem creates bigger problems down the road.
Move inventory faster. If you carry products, look for ways to reduce how long items sit on your shelves. Can you adjust your ordering to match actual demand more closely? Are there slow-moving items you should discount to clear out? Could you negotiate better terms with suppliers so you're not paying for inventory so far in advance of selling it?
Faster inventory turns mean cash tied up for less time. That's working capital you can use elsewhere.
You don't need to tackle all three at once. Pick the lever that makes the most sense for your business right now.
If your clients regularly take 60 days to pay while you're on net-15 terms with vendors, start with collections. If your payment terms are already tight but you're sitting on three months of inventory, focus there. If you've optimized both and still have a gap, then talk to suppliers.
The goal is to shrink the timing difference between cash out and cash in. The smaller the gap, the less money it takes to run your company day-to-day. The less money it takes to run day-to-day, the less stress you carry about making payroll or covering expenses. The less stress you carry, the more energy you have to actually lead your business instead of scrambling to keep it afloat.
You built a business that's profitable on paper. Now make sure it's sustainable in practice.
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If the gap between "we're profitable" and "we can't make payroll" feels too familiar, you're not alone—and you're not stuck. I send weekly emails with practical strategies to help you see your cash clearly, make better decisions faster, and build a business that actually supports the life you want. Join the list at stopgrowingbroke.net.