Can a profitable company run out of cash?
Posted on November 5, 2026
Of the three main financial statements, the Statement of Cash Flows is the one I’m asked to explain most often. It’s also the easiest to understand once you see it the right way.
It answers one question: where did the cash come from, and where did it go?
Think of it as the activity on your business’s checking account over a period of time. The Income Statement tells you whether you made a profit. The Balance Sheet tells you what you own and owe. The Statement of Cash Flows shows the actual movement of cash.
Why it matters: a company can report a profit and still run out of cash. Say you sell $100,000 of product on credit. Your Income Statement shows the revenue and the profit, but if customers haven’t paid yet, you haven’t received a dollar.
The statement has three sections:
Operating: cash from running the business, like customer payments in and payroll, rent, and vendors out. Is the core business generating cash?
Investing: buying or selling long-term assets like equipment or vehicles. What are we investing in for the future? (A negative number here isn’t necessarily bad. It often means the company is growing.)
Financing: borrowing, repaying loans, issuing stock, or paying dividends. How is the company funding itself?
Here’s a quick example. Your company starts the month with $10,000 in cash.
Operating: collected $50,000 from customers, paid $40,000 to employees and vendors → +$10,000
Investing: bought equipment → –$5,000
Financing: paid down a bank loan → –$2,000
Net change: +$3,000, so cash rose from $10,000 to $13,000. The statement explains exactly why.
What I look for when I review one:
Is operations generating cash? Positive operating cash flow means the business is funding itself.
Is growth funded by earnings or by debt? Constant borrowing just to cover operations can be a warning sign.
Is the company investing in its future through equipment, technology, and facilities?
The bottom line: the Statement of Cash Flows tells you where the cash came from, where it went, and whether the business is generating enough to sustain itself.
If you’d like help reading yours, or you’re not sure your cash picture matches your profit picture, please reach out.
I share practical insights gathered from more than five decades of certification, compliance, and consulting experiences across organizations of every size and industry. If a topic resonates with you, or you’d like to discuss a financial or accounting challenge you’re facing, I’d be happy to have a conversation. Feel free to call or email anytime: (515) 988-4664; [email protected]