So how do you dodge it? Start by knowing what to look for.
Day 1: You spend before you earn a cent
Your journey starts with an order. You place it with your supplier for the product or goods you plan to sell. No cash has moved yet, but the clock has started. From here, everything is about timing.
Day 30: The goods arrive, along with the bill
Thirty days in, the goods land. Great. Except your supplier wants their piece. This is your first cash OUT moment, and it stings when you haven’t sold a single thing yet. Money leaves the building long before any comes in.
Day 50: You make a sale (still waiting!)
Twenty days later, you sell to your customers. Feels like the finish line. It is not. If you gave them 30 day payment terms, the cash is still a month away. You have a sale on paper and nothing in the bank.
Day 80: The cash finally lands.
Your customers pay. The first real cash IN since this whole thing began.
Now count it up. You paid your supplier on Day 30 and didn’t see a dollar until Day 80. A 50 day hole you had to fund yourself, on top of the wages, rent, and software bills stacking up the whole time.
*NOTE: Sure, not every business operates on 80 day cycles, but every business has to deal with cashflow flowing and…not.
Closing the cash gap
This is your working capital, and the part of startup finance that catches people out. The longer the gap between paying your suppliers and getting paid by your customers, the more cash you need in reserve just to stay alive.
Your gap might be shorter. It might be a lot longer. It depends on your supplier terms, your customer terms, and how fast you actually get paid (spoiler: customers love to pay late).
How to shrink a cashflow gap:
1. Get customers to pay up front Card payments at point of sale put cash in your hands almost instantly.
2. Negotiate longer terms with suppliers Every extra day you hold their money is a day you do not need your own.
3. Chase overdue payments hard A weekly overdue report and one person owning the follow ups keeps cash moving.
4. Keep a reserve Always assume the cash lands later than promised.
The businesses who survive aren’t the ones with the best product. They are the ones who modelled this gap before it arrived, and had the funding ready to ride it out. So, BEFORE you launch, map your own Day 1 to Day 80. Know exactly when cash leaves and when it comes back. Then fund the difference.
Don’t get caught short. Stop guessing where your money goes. Goru’s Cash Flow Forecast template maps your gap for you, down to the week. Punch in your numbers and find out what you’re really working with.
