“How can we be having our best year ever and still struggle to pay bills and make payroll?”
Posted on June 11th , 2026
It's a question many business owners ask.
Revenue and profit don't always translate into cash flow.
One metric that can help identify liquidity challenges is the Quick Ratio (Acid Test Ratio).
Quick Ratio = (Current Assets – Inventory) ÷ Current Liabilities
Example:
• Current Assets: $200,000
• Inventory: $120,000
• Current Liabilities: $100,000
Quick Ratio = ($200,000 – $120,000) ÷ $100,000 = 0.8
A ratio below 1.0 may indicate liquidity concerns, meaning the business may struggle to meet short-term obligations without relying on inventory sales.
The Quick Ratio is an important indicator, but it's only the starting point. A deeper analysis is often needed to uncover the root cause and identify solutions.
If you'd like to better understand your company's liquidity position and what the numbers are telling you, feel free to reach out. I'm always happy to discuss ways to improve cash flow and financial performance.