Profitable But Broke: The DTC Cash Flow Trap (And How to Avoid It)

Hey everyone,

Welcome back for another bite to chew on.

How does a DTC brand show strong profits on paper… but still struggle to make payroll?

We’ve been there at Obvi. 

And it’s not just us — it’s one of the most common (and dangerous) traps in eCommerce. Now that margins are being squeezed from all fronts (hello tariffs), it’s an even bigger risk than ever before. 

We recently sat down with Abir Syed, founder of DTC accounting agency UpCounting, to unpack this exact problem and how it can actually destroy brands (even during high-growth periods.)

In this edition, we’re sharing the systems, metrics, and mindset shifts we’ve used to fix our cash flow at Obvi — and how to build financial resilience before it’s too late.

Whether you’re in marketing, ops, leadership, or finance in your business, you need to understand these fundamentals.

On the Menu:

• Profit vs Cash Reality Check

• Channel Strategy: Why Each Needs Its Own P&L

• Building Your Cash Flow Defense System

Don’t miss our entire conversation with Abir:

You can catch this episode on…

• Spotify 🎧

• Apple 🍎

• Youtube ▶️

Coming Soon - Commerce Roundtable Official Afterparty 🍹

Commerce Roundtable in Miami drops in just a few days. We’re throwing the OFFICIAL event afterparty with Gorgias. Spend the day learning from the best minds in DTC and evening mingling with ambitious operators from all over the globe.

We promise a killer venue, great libations, and even better company.

Don’t miss out!

🗓️ April 25
🕦 7:00 pm
🕋 Gekko

Grab your Afterparty invite 👉🏽 here

The Profit vs. Cash Reality Check

This pattern nearly crushed us at Obvi, and it’s a trap we see way too often in DTC.

When our DTC performance spikes, it’s natural to ramp up inventory and ad spend to match. So a natural cycle is:

Sales pop off → Meta performing → Big retail push → Heavy inventory investment

So even though sales looked great and margins were solid, our cash was disappearing.

⚠️ What’s Actually Happening?

You’re profitable on paper… but broke in practice. Why?

• You’re paying for inventory now, but won’t sell it for 3–6 months

• You’re running ads now, but won’t pay Meta for 45 days

• You’ve shipped wholesale orders, but payment terms are 30–90 days
  

Suddenly, even with great sales, you're in a cash crunch.

💡 Why Profit ≠ Cash

Here’s what the P&L misses:

• Inventory burn: You only see COGS as it sells — not when you actually paid.

• Revenue lag: Sales look great… but that cash might not hit for weeks.

• Pre-spend on ads: Your CAC hits before your cash returns.

• Sales tax trap: You’re “holding” money that doesn’t belong to you.

This is how you can look profitable on paper while struggling to make payroll.

🧪 Try This Reality Check

Run a quick test. Look at your bank account balance today.

Now subtract everything due in the next 30 days. That’s your actual position — not what your Shopify dashboard says.

Channel Strategy: Why Each One Needs Its Own P&L

One of our biggest shifts at Obvi was realizing this: Every sales channel is its own business.

Not just a new revenue stream. Not just a traffic source. A totally different financial engine with different rules.

⚖️ The Cash Flow Gap: DTC vs Wholesale

Let’s compare…

DTC:

• Customer pays now

• Shopify pays tomorrow

• You pay for ads 30–45 days later 

→ Cash comes in fast

Wholesale:

• You ship inventory

• It sits in retail

• You wait 30–90 days for payment

→ Cash comes in slow (if at all)

The same $400K in revenue can have wildly different cash impacts depending on where it came from.

😬 Real-World Pain: The Receivables Nightmare

We shipped a major order to Walmart.

And then we waited.

And waited some more.

Payment didn’t come.

Turns out our invoices had tiny technical errors. We had to resubmit everything… and the 45-day clock restarted.

It moved out payment terms from 45 to 90+ days and completely killed our cash expectations for that month.

📈 Solution: Channel-Specific P&Ls

To make better decisions, we now break down P&Ls by channel:

Track separately:

• Revenue

• COGS (some SKUs differ by channel)

• Variable costs:
  

  • DTC → shipping, transaction fees, ad spend

  • Wholesale → broker fees, chargebacks, trade spend
    

• Fixed cost allocations (where relevant)

• Cash conversion cycle: How long it takes to turn spend → cash
  

🔑 Key benefit: This way we can see what each channel actually contributes to the business — and which ones are quietly draining cash.

Building Your Cash Flow Defense System

After a few close calls, we realized cash flow needs a system, not vibes.

Here’s how we manage cash proactively at Obvi — with input from our Head of Finance (Ravi) + Abir and our partners at UpCounting.

📅 1. Weekly Cash Flow Forecasting

We maintain a rolling 13-week forecast that shows:

• Expected cash inflows by channel

• Projected outflows: inventory, ad spend, payroll, etc.

• Weekly cash position

Every Monday, finance, ops, and marketing review it together.

“If Ash wants to increase spend, Ravi can say: ‘Not yet — wholesale payments are delayed,’”

This forecast is now our central planning tool, not just a finance report..

💵 2. The Break-Even-First Model

We stopped gambling on long-term LTV.

After seeing the dangers of the LTV game, we've shifted to a first-order profitability model:

We aim for profit on the first purchase. Not 3 months later.

3. The Quick Ratio Check ✅

We always track our quick ratio. Wait, what is that?

QR = (Current Assets – Inventory) / Current Liabilities

Why it matters: You can be “asset-rich” with inventory sitting in a warehouse… and still be cash-poor. 

When you have a large amount of inventory sitting for months and growing payables, this ratio becomes critical.

🚨 Pro Tip: If your quick ratio drops below 1, you’re skating on thin ice.

🧠 4. Smarter Use of Debt

We've gotten smarter about debt, using it for specific inventory purchases with clear ROI timelines rather than general working capital. That means we don’t use loans for general burn.

Only for:

1. Specific inventory buys

2. Clear ROI timelines (e.g. BFCM restock)

“If it’s a $200K buy that turns into $1M in 60 days — that’s a smart use of debt.”

🧭 5. Channel Diversification (With Guardrails)

We still test new channels, but each one must:

• Have its own P&L

• Meet specific contribution margin targets

• Carry its share of fixed costs

• Include a channel-specific inventory plan

🔑 This keeps diversification from becoming a silent cash leak.

🧰 Operator Toolbox – Tools in our Finstack

⭐️ Agency & Vendor Recommendations! Need help finding a great partner? Fill out this quick form, and we’ll connect you with some of our favorites. Quick connect →

🔹 Upcounting – Our accounting and bookkeeping specialists. We’ve worked with Upcounting for years to maintain, optimize, and improve our financials. See if they can help build your financial engine →

🔹 Settle – The all-in-one financial platform that helps us manage bill payments, accounts receivable, procurements, and working capital. Get their Launch Plan FREE and end your spreadsheet nightmare →

🔹 Luminous – This is the platform that finally convinced us to move from Google Sheets to an inventory management system. Manage your inventory data in REAL TIME with Luminous → 

🔹 Chargeflow – Still fighting chargebacks? This is a solved problem. Use Chargeflow to completely eliminate this headache from your business → 

Some of these are referral partners. We only share what we actually use or would recommend to a friend.