$10M in revenue and no cash: how to understand the gap

There is a specific kind of confusion that hits a business owner when QuickBooks says you are profitable, but the bank balance says otherwise. You hit $10M in revenue, profit is up. You would expect cash to feel a little less tight. Instead, you are juggling vendor payments and wondering where all the money went.

This is one of the most common patterns we see with growing businesses at Arlo Performance, and it's rarely a mystery once you know where to look. Growth can compound cash problems. A business scaling from $5M to $10M can absolutely grow itself into a cash crunch, even while turning a profit on paper. The fix isn't more revenue. It is understanding exactly where your cash is trapped.

Here are the five places to look first, in order, when a client says "we are profitable but broke."

1. Balance sheet: what is your working capital breakdown?

Before touching a spreadsheet full of transactions, start with the balance sheet. Working capital increase, current assets minus current liabilities relative to a prior period, tells you whether your profit is tied up in the operating cycle instead of sitting in the bank.

At $10M in revenue, most cash traps hide in three places: inventory, accounts receivable, and accounts payable timing. If your working capital percentage (to sales) is greater than your Gross Profit Percentage, you’re burning cash.

The quick gut check: compare working capital as a percentage of revenue quarter over quarter. If that ratio is climbing, cash is accumulating somewhere on the balance sheet that is not your bank account.

2. Fixed assets: are you overspending on fixed assets?

Fast-growing companies love to buy things. New equipment, new warehouse space, new vehicles, new software licenses. These purchases feel justified in the moment, and most of them are.

But fixed assets are cash that's gone and isn't coming back quickly. We look at capital expenditure as a percentage of revenue and compare it against your industry benchmark. If you're spending well above that benchmark, or if recent purchases haven't yet driven a measurable increase in output or capacity, that's cash sitting in equipment instead of your bank account.

The other question worth asking: did this purchase need to happen now, or could it have been leased, financed, or delayed six months? Growth-stage companies often front-load capital spending in anticipation of demand that hasn't fully materialized yet.

3. Inventory: is it valued correctly?

Inventory is the classic cash killer for any business that holds physical product, and it's usually the biggest single line item on a Balance Sheet

Two things to check here. First, is inventory actually moving, or is a chunk of it aging, slow, or dead stock still sitting on the balance sheet at full value? Second, is it valued correctly in the first place? Overvalued inventory inflates your assets and makes your balance sheet look healthier than it is.

Run an inventory turnover ratio and compare it to prior periods. A slowing turnover rate, paired with rising inventory dollars, is a clear sign that cash is being converted into product that isn't converting back into revenue fast enough.

4. Accounts receivable: can you actually collect those old debts?

Revenue on the books isn't the same as cash in the bank. Accounts receivable is a promise, not a payment, and the older that promise gets, the less likely it is to ever turn into cash.

We always pull an AR aging report and look specifically at anything past 60 days. That bucket deserves real scrutiny: is it collectible, or is it effectively a write-off that hasn't been recognized yet? A business can look profitable and still be starving for cash if a meaningful chunk of revenue is sitting in receivables that are six, nine, or twelve months old.

This is also where payment terms matter. If your average days sales outstanding (DSO) has crept up as revenue has grown, you're extending more credit to customers than your cash position can support.

5. Margin per SKU: does your GP by SKU report match the GP on your financial statements?

This is the check that most people want but can’t get. Aggregate gross profit on the income statement can look perfectly healthy while individual products or SKUs are losing money.

Pull a gross profit by SKU report and reconcile it against the gross profit on your financial statements. If the numbers don't match, this is a costing error. You may not be making the Profit you think you are. Or you have some costs not accounted for correctly.

For businesses running an ERP, this is where ERP accounting support really matters: costing, inventory and the general ledger need to tell the same story.

Growth without SKU-level visibility means you can be scaling the wrong products, and doing it faster every quarter. Fixing this often unlocks cash faster than anything else on this list, because it stops you from funding growth in the parts of the business that don't pay you back.

Why revenue growth doesn’t always mean more cash

Hitting $10M in revenue is a real milestone, but it's not proof of financial health. Cash gets stuck in working capital, fixed assets, inventory, receivables, and margin blind spots, often all at once. The good news is that every one of these is fixable once you know where to look.

If your revenue is climbing but your cash isn't following, start with these five areas. The answer is almost always in there.