My Company Sells, but No Cash Is Left: What I Check First
Your company is selling more, but there is still not enough money to pay the bills. You look at revenue, you see growth, and you try to understand where the money went.
I once worked with a company in this situation. Two large clients made sales grow quickly. The profit margin fell until the operation started to lose money.
When we broke the numbers down by client, it became clear that part of that growth came from sales that did not pay off under the terms that had been negotiated. We renegotiated prices and revenue went down. The net profit margin returned to where it had been before.
That is why, when a business owner tells me “I sell, but there’s no money left,” I start by looking at what each sale leaves for the company.
How I break this down by client
I start with each client’s revenue and add costs to the analysis step by step. The sequence is this:
- I separate revenue by client and by the products or services they bought, taking into account any discounts given.
- I identify the costs and expenses I can tie directly to that sale. Depending on the business, this includes merchandise, raw materials, freight, commissions, and taxes on the sale. Each amount should appear only once in the calculation.
- I look at the indirect costs involved in delivery and at the spending of the areas that keep the company running. Administration, for example, has to be paid even though it does not generate a sale directly.
- I allocate the shared expenses that have not been assigned yet. One criterion I use in this analysis is share of revenue: how much of that overhead is tied to each client’s revenue.
This last step requires care. The allocation criterion has to make sense for the operation. Clients with similar revenue can consume very different amounts of work and resources. The result by client is a management estimate that depends on these choices; the company’s net profit has to be checked against the complete results for the period.
The mistake I find is stopping at direct costs. The owner looks at what they paid for the product, compares it with the sale price, and concludes that the difference is free money. But there is still a structure to support.
Contribution margin shows what is left after variable costs and expenses. That remainder helps pay fixed costs and build profit. It also needs to be part of the analysis, alongside the result after allocations.
When this information is laid out in the open, you can investigate which sales are contributing to the company and which need a review of their terms.
If you want to run this analysis in your company, I work with owners of small and midsize businesses in sales, finance, and management consulting. The first conversation is free and carries no obligation.
Check when money comes in and when bills fall due
I also look at timing. Imagine a supplier has to be paid in 15 days and the client only pays in 60. The company has to finance the gap between payments out and payments in.
If sales grow under these conditions, the cash needed to keep the operation running can increase. This can happen even when the sales are profitable.
That is why I track both results and cash. The DRE (demonstração do resultado do exercício, the income statement) helps you understand the profit or loss for the period. The cash flow statement shows money received and paid out, including commitments that are still to come due. They are controls that answer different questions.
Sebrae explains this difference between profit and available cash, including when the payment term given to the client squeezes cash. Sebrae is a Brazilian support organization for small businesses.
What I do when a sale doesn’t pay off
Once I understand the numbers, I evaluate the paths for renegotiation.
The first is to try to raise the price. If the delivery stays the same and the amount does not support the operation, I need to discuss the commercial terms with the client.
Another path is to reduce the scope. This means reviewing what is included in the price and agreeing on a delivery that makes sense under the new terms. The client needs to know exactly what changes.
When the relationship does not find a viable arrangement, I consider preparing to replace that revenue with better sales and then ending the relationship. This transition has to be planned so the company can withstand the change.
A negative result after allocation, on its own, does not settle this decision. You need to check the costs that actually change if that sale goes away. Rent or part of the administration may stay the same. Cutting the revenue while keeping the expenses can make the result worse.
To start in your company, pick a closed month and open up the clients that weigh most in your revenue. Write down the revenue, the costs tied to each sale, and the share of shared expenses, keeping the allocation criterion visible. Also check when each client pays and when your bills fall due.
With that, you have a base to investigate where you need to revisit price, scope, or payment terms before you close the next negotiation.