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A few weeks ago, a young retailer named Jamie popped in my Zoom with a problem that sounded simple at first: “Dave, I think I need a another loan.”
Now, I’ve heard that sentence a thousand times. It usually means something else - cash is tight, projections didn’t tell the whole truth, or the business grew faster than the money did. Jamie runs a small retail shop here in Louisville that sells locally made home goods and gifts. She’s smart, creative, and has built a loyal following. But lately, she’s been lying awake at night wondering how a growing business could feel so broke.
Jamie told me she had opened her store with a modest startup loan. She bought her first round of inventory, painted the walls, built a nice website, and by month three, customers were coming in steady. Her sales were good, her margins were decent, and she’d even started getting some e-commerce traction.
But when she came to me, her tone was different. “I feel like I’m always out of cash,” she said. “Every time I sell more, I have less money in the bank.”
That’s when I knew we were about to meet the hidden villain of many small-business stories — the inventory squeeze.
I asked her if she had a cash-flow projection. Beaming with pride, she opened a spreadsheet that looked fine on the surface: sales climbing, expenses stable, cash balance up. But one number jumped off the page — the line for inventory purchases. It showed a single lump-sum expense at startup and nothing else.
“Jamie,” I said, “how often do you have to restock?”
“Oh, every couple of weeks,” she said. “Some products sell out fast.”
“And when you reorder,” I asked, “do you pay your suppliers right away?”
“Usually. They want payment up front.”
There it was — the disconnect. Her projections assumed that her initial inventory would somehow stretch forever. In reality, she had to constantly reinvest cash into new stock long before she got paid for what was already on the shelves. It wasn’t that her business wasn’t profitable. It was that her cash was always trapped in inventory.
This is one of the most common—and least talked-about—reasons good businesses struggle.
When you sell physical products, your money lives a double life. You pay cash for inventory today, sell it later, and collect payment sometime after that. If that timing gets out of sync, your bank balance starts shrinking even as sales rise.
It’s called a working-capital gap, and it’s the silent killer of otherwise healthy small businesses.
Here’s how it happens:
- You buy inventory (cash out).
- It sits on shelves for 30–60 days (no cash movement).
- You sell it (maybe cash in, maybe on terms).
- Meanwhile, rent, payroll, and loan payments don’t wait.
That gap between paying and getting paid is what lenders call the float. And if you don’t plan for it, you can end up like Jamie — growing yourself right into a cash shortage.
The Aha Moment
We built a new budget projection together, line by line. This time, instead of treating inventory as a one-time startup expense, we modeled it as a recurring cash outflow tied to sales volume. For every dollar in sales, a certain percentage had to go right back into new stock.
The picture changed instantly. Instead of a steady upward curve, her cash balance now looked like a roller coaster — full of dips before the peaks.
Jamie stared at the graph. “That’s exactly how it feels,” she said. “Every time I think I’m ahead, another big order wipes me out.”
Now that the problem was visible, we could fix it. We calculated her average inventory cycle — how long cash stayed tied up before it returned — and used that to estimate how much extra working capital she actually needed. It wasn’t another huge loan. It was a small line of credit to bridge that timing gap.
The goal wasn’t more debt; it was smarter timing.
Here’s what every entrepreneur can learn from Jamie’s experience:
- Profit isn’t the same as cash. You can sell more and still run out of money if you don’t manage the timing.
- Inventory eats cash first. The faster you grow, the hungrier it gets.
- Your projections must reflect real timing. Treat inventory, receivables, and payables as moving parts, not static numbers.
- Working capital is part of your startup cost. Plan for it, ask for it, and show lenders you understand it.
When we finished, Jamie’s new projection showed exactly how much cash cushion she needed to stay healthy — and how quickly she could pay it back. Her banker loved it.
Within a week, her line of credit was approved.
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A few days later, Jamie emailed me:
“I’m finally sleeping again. I know where the money’s going — and when it’s coming back.”
That’s the magic of understanding cash flow. It turns anxiety into control.
When business owners say they’re “bad with numbers,” what they really mean is they haven’t yet seen how those numbers tell the story of their business. Once you see that story clearly, you start making better decisions — when to buy, when to hold off, when to seek funding, and when to just breathe.
Lenders notice that confidence. They see a business owner who isn’t guessing, but planning. And that makes you the kind of borrower they want to back.
Bringing It Home
At the Louisville SBDC, we see the inventory squeeze every week — retailers, food trucks, even manufacturers caught between their passion and their cash flow. The fix usually isn’t complicated. It’s awareness, planning, and a spreadsheet that finally tells the truth.
We help entrepreneurs like Jamie break their numbers into stories lenders can believe in. Because a spreadsheet full of realistic assumptions isn’t just a financial document — it’s a credibility statement. It says, “I know how my business actually works.”
So if you’ve ever looked at your bank account and thought, “Where did it all go?”, it might be time to revisit your projections. Add a line for inventory replenishment. Model your cash flow monthly. And most importantly, ask yourself this: Do my numbers tell the story lenders need to hear?
If not, come see us. Bring your spreadsheets, your receipts, and your coffee — we’ll help you make sense of it all. Because sometimes, the only thing standing between you and the capital to grow isn’t a lack of opportunity… it’s just the timing of your cash.
About the Author
Dave Oetken is the Director of the Louisville Small Business Development Center. He and his team help entrepreneurs turn solid ideas into fundable businesses by translating passion into clear plans and lender-ready numbers.
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