The Deal That Almost Broke the Business

A Simple Story About the Cash Flow Trap That Catches Many Entrepreneurs

Joe recently opened a bicycle business, proudly designing and manufacturing his own bikes, which quickly gained a reputation for high quality. The business grew steadily, and with his capable team, he was producing more and more bicycles each month.

When a large bike distributor approached him with a lucrative deal, Joe didn’t think twice. The agreement included a fixed monthly order that would more than triple his previous sales volume. After calculating the cost of bike parts and his team’s salaries, Joe made sure each bike would still generate a solid profit.

The team was highly engaged in ramping up production, and customers were happy to buy the new bikes. Everything seemed to be going perfectly—until a few months later, when Joe discovered his company was in deep financial trouble.

He only realized his mistake when his bank account went negative. At first, he was confused—he had ensured the deal was profitable on paper. But while the deal itself was profitable, he had overlooked one critical factor: timing of cash flow.

The contract with the distributor stated he would be paid 60 days after delivery. Meanwhile, he had to pay his suppliers within 30 days and pay his employees monthly. This meant he was spending a lot of money upfront and waiting a long time to get paid.

To bridge this gap, Joe turned to short-term loans—but the high interest rates quickly added up. The following months became a stressful juggling act of waiting for payments while scrambling to cover expenses.

Joe’s business didn’t fail because it was unprofitable. It struggled because he didn’t manage his cash flow. A business can be popular and profitable—but if cash inflows and outflows aren’t carefully managed, it can still run out of money and collapse.

So, what could Joe have done differently?

Instead of tripling sales overnight, he could have scaled up gradually and sustainably, making sure he not only stayed profitable, but also maintained healthy cash flow.

He should have paid closer attention to the payment terms in the contract, aligning them more closely with his own obligations.

He might have tried negotiating better payment terms with his suppliers as well. While suppliers also want to optimize their own cash flow, some flexibility might have been possible.

Cash flow issues are one of the main reasons new businesses fail. Without enough cash, even a profitable company can face bankruptcy. And it’s not just small businesses—big companies can face liquidity issues too.

Remember Toys“R”Us?

The toy retail giant had to buy massive amounts of inventory ahead of the holiday season, tying up cash months before seeing revenue. Already burdened by debt from a leveraged buyout, the company faced supplier pressure to pay faster. This cash squeeze ultimately led to bankruptcy.

Image by Krzysztof Dzwonek from Pixabay