Cash Conversion Cycle: Bridging the Gap Between Profitability & Cash Flow

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When an eCommerce business starts making more money, it costs more money to run. Consider an apparel business that sells athleisure. A pair of joggers might retail on the company’s website for $100 and cost them $40 to manufacture and ship. The gross margin on the joggers is $60 (60%), leaving that amount for all of the non-unit expenses like corporate salaries, rent & utilities and marketing. 

That all makes good sense. But what if you want to start this apparel company from scratch? You would need to pay the manufacturer for those joggers before you sold them to your customers. The income statement describes the profitability of a company, but it doesn’t describe the cash dynamics.