Ask most new owners whether their business is doing well, and they will tell you about profit. Sales were good, and costs were lower than sales, so the business made money. Then the rent comes due and there is not enough in the bank to pay it. How can a business that is making a profit run short of money?
The answer is the most important lesson in small business, and it is surprisingly hard to learn from a book: profit is not cash. Profit is a calculation. Cash is what is in your hand on the day a bill is due. The two can be very far apart.
Where the gap comes from
Profit counts a sale when you make it. Cash only counts it when the customer actually pays. If a customer owes you $200 and pays next month, your profit this month already includes that $200, but your bank account does not. Meanwhile, your landlord, your workers, and your suppliers want to be paid on time, every time.
The gap also opens when you grow. Opening a second shop is a smart move on paper, but the setup money leaves your account today, while the sales that pay it back trickle in over many months. A business can grow itself right into a cash shortage.
A board game that makes you feel it
GSU built Open for Business: The Main Street Game so players can live through this lesson in a single game instead of learning it the expensive way. It is free, it runs in your web browser, and there is nothing to download and no account to make.
Every player starts with $3,000. You roll one die and move around Main Street, where nine shops are waiting to be opened, from a $600 food truck to an $1,800 hardware store. Each time you pass the start square, you close the month: your shops report their sales, and you pay rent and payroll for every shop you own. Sales are never the same twice. A shop can bring in anywhere from 60 to 120 percent of its normal month, just like a real store.
Then there are the surprise cards. One of them reads: A customer owes you $200 and pays next month instead. Next month's cash comes in $200 short. The lesson printed on that card says it plainly: a sale is not cash until the money is in your hand.
Open three shops in your first three turns and you may learn the lesson the hard way: plenty of shops, no cash.
What happens when the cash runs out?
The game does not forgive a cash shortage, because real life does not. If your cash falls below zero, you are forced to borrow from the bank, and you pay a $100 overdraft fee for the privilege. Loans cost 2 percent a month, and that interest is due every month, good or bad. Borrow past the $3,000 limit, and you start selling your shops at half what you paid for them. Run out of shops, and you close for good.
The winner is not the player with the most shops. It is the player with the highest net worth at the end: cash, minus what you owe the bank, plus what your shops would sell for. That rule rewards the habits real owners need: keep a cushion, grow at a pace your cash can carry, and borrow only when the numbers say you can pay it back.
Three habits the game teaches
From game to real plan
When you are ready to try the lesson on your own idea, GSU's free Owner's Forecast runs your real numbers through a thousand possible years and shows how often your plan survives. Lesson 7 of the free entrepreneurship course, Cash Is Oxygen, walks through a $30,000 job that is profitable on paper and still $9,000 short in week six. The full twelve-lesson course, From Risk to Reward, ends with a free certificate exam.
Global Sovereign University is a 501(c)(3) nonprofit. Every tool on this page is free and always will be. Play Open for Business now and see how long your cash lasts.
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