Why Strong Sales Aren’t Enough: Jason Feifer on Avoiding Business Bankruptcy

In a recent LinkedIn post, Jason Feifer explores critical reasons why businesses can face bankruptcy even with robust sales figures. Feifer, an entrepreneur and editor-in-chief of Entrepreneur Magazine, emphasizes that cash flow, not just revenue, is the lifeblood of a sustainable business. He highlights a common paradox where founders celebrate record sales months while simultaneously struggling to meet fundamental operational expenses like payroll.

Feifer points out that a significant number of business failures stem from a misunderstanding or mismanagement of cash flow, rather than a lack of demand or product quality. He illustrates this with a stark observation:

“I’ve watched too many founders celebrate record months while scrambling to make payroll. Here’s what kills them.”

The post details ten specific scenarios that can lead to financial distress, even when sales appear strong. These range from offering extended payment terms to clients while paying suppliers on shorter timelines, to issues with inventory management and invoicing delays.

The Perils of Extended Payment Terms and Rapid Growth

One of the key issues Feifer identifies is the disparity in payment terms between a business and its clients or suppliers. He notes that some businesses extend generous payment windows, such as 90 days, to their customers while being required to pay their own suppliers much faster. This creates a significant cash flow gap that the business must internally fund.

“They’re giving everyone 90-day terms while they pay suppliers in 30. That’s 60 days of float they’re funding,” Feifer writes, underscoring the hidden cost of such arrangements.

Furthermore, Feifer warns against the dangers of growing too quickly. He explains that each new sale, while seemingly positive, often requires upfront investment in resources, inventory, or personnel. Rapid expansion, therefore, can exacerbate cash flow problems by increasing outgoing expenses before incoming revenue is realized.

Inventory, Invoicing, and Strategic Cash Management

Beyond payment terms and growth rates, Feifer addresses other financial pitfalls. He criticizes the practice of holding onto dead inventory, which ties up capital and incurs storage costs, effectively becoming a liability rather than an asset. Similarly, he highlights the negative impact of delayed invoicing, stating:

“They invoice whenever they remember. Not same-day. Not next-day. ‘Eventually.’ That’s cash sitting in limbo.”

Feifer also contrasts the common business practice of offering discounts with the less frequent incentive of early payment discounts. He finds it counterintuitive that businesses are more willing to reduce prices than to offer a small incentive for faster payment, which would immediately improve cash flow.

Rethinking Cash Flow as Strategy

A crucial point Feifer makes is the fundamental difference between profit and cash. He argues that many founders treat cash flow as a mere accounting function, when in reality, it is a strategic imperative. As Feifer puts it:

“They treat cash flow like accounting. It’s not. It’s strategy. It’s oxygen. It’s everything.”

He elaborates that a business can appear profitable on paper but still face bankruptcy if it lacks sufficient cash on hand to cover its immediate obligations. This lack of a cash reserve makes the business vulnerable to even minor disruptions, such as a single large customer paying late.

Feifer concludes by offering a concise remedy: invoice immediately, negotiate all terms, build cash reserves, and track cash daily. He suggests that tools like Intuit QuickBooks can provide the necessary visibility and control to manage these critical aspects of business finance effectively.