Insights · Written by Taha Ahmad Salih, CEO

The inventory cash trap: why profitable brands run out of cash

Short answer: A brand can be profitable on paper and still run out of cash when inventory ties up the money. Stock is bought months before it sells, so growth often needs more cash, not less. To avoid the trap, measure how much cash sits in stock, how long it takes to sell, and whether your purchasing rules match your supplier lead times.

How the trap forms

Growth usually means buying more stock to avoid running out. Suppliers want payment before shipping, and marketplaces or payment processors may pay out after a delay. So the business pays first and collects later. When sales grow faster than planned, the gap between paying for stock and receiving revenue gets wider, and cash runs thin even while profit looks healthy.

What to measure

Start with three numbers: the value of stock on hand, the average days of cover for your best sellers, and the purchase amount per month. A simple rule of thumb: if you buy $150,000 of stock a month and it takes about 90 days to sell, roughly $450,000 is sitting in inventory at any time. That figure should be compared with the cash you actually have available.

A worked example

Illustrative example, not client data: monthly stock purchases of $150,000 with a 90-day sell-through.

Illustrative only. The point is the size of stock compared with monthly costs, not the specific figures.

What to do this month

Track stock value and days of cover weekly for top SKUs.
Compare purchase timing with supplier payment terms.
Set reorder points from lead time and sell-through, not from gut feel.
Cut or discount slow lines before buying more of them.
Keep a cash buffer for ads and fixed costs before approving large orders.

Questions readers ask

Do we need inventory software to fix this?

Not always. Clear data, reorder rules and a weekly review fix many cases. Software helps once the process is sound.

How much cash should we hold back?

It depends on your costs and purchase cycle. We build a cash plan for your business during the diagnosis.