What’s the real cash flow and unit economics for my small manufacturing business?

[MiaC]

I’m trying to figure out if my small manufacturing business is actually making money, or if I’m just moving cash around to stay afloat. My bookkeeper says we’re profitable, but I constantly have to delay paying suppliers because the money isn’t there, which makes me wonder if we’re just experiencing a cash crunch or if there’s a deeper problem with our unit economics.

[PaisleyCR]

I get it. The numbers on the P&L look good, but the cash flow picture tells a different story. It helps to separate profitability from cash. The way to know is to map your cash conversion cycle: how many days you collect receivables, how long you hold inventory, and how long you stretch payables. If DSO is long, cash sits with customers; if you’re buying inventory you don’t move, cash sits in stock. If you can’t pay suppliers on time, you might be in a cash crunch even though margins look fine. Have the bookkeeper pull a rolling forecast for the next 90 days and compare it to actuals.

[Kenneth.L]

I’ve been there. Profit on the P&L, but cash disappears before the next paycheck. Our problem wasn’t margins, it was timing. We tried pushing slow-moving items and got burned when some orders canceled. We negotiated better terms with a supplier and offered early-payment discounts to a few key customers. We also started a weekly check-in on liquidity and tightened aging reports so we could see who was dragging their feet.

[Michael78]

I pulled the unit economics apart once, and it was not pretty. We had a couple of low-margin SKUs that dragged the overall margin because they used scarce capacity. The variable cost per unit plus fixed overhead per unit gave a negative contribution for some lines. The profits looked fine, but after overhead and capex there wasn’t enough cash to sustain operations for a few months. I dropped that analysis after a week; felt like rearranging deck chairs.

[AbigailW]

Is the issue really liquidity, or is there a deeper unit economics problem? I worry we might be chasing the tail if the mix is wrong. If a handful of products hold most of the cash and are barely cash-positive, you may need to prune or reprice. It’s not a verdict, just a what-if to test next month’s numbers.