Your Business Has Assets. So Why Is It Running Out of Money?

A business can own a million dollars of assets and still miss payroll on Friday. Learn current assets, current liabilities, working capital and liquidity with one furniture workshop, and you'll spot a cash crisis months before it hits. Assets tell you what a business is worth. Liquidity tells you whether it survives the month. This video takes apart one furniture workshop with a million dollars of assets and twenty thousand in the bank: current vs long-term assets, current liabilities and what's due soon, working capital (current assets minus current liabilities) and the current ratio, why inventory is not cash, and the honest 30-day math that shows a $100,000 gap. Then the reveal: the most valuable asset can't pay a single bill, and how paying for long-term assets with short-term money drained the cash. Finally, how to measure liquidity (current ratio, quick ratio, cash ratio and a 30-60-90 day cash table), what the owner can do, and five checks for your own business. Chapters 0:00 A million in assets, can't pay Friday 1:48 A company that looks solid 3:17 Two kinds of assets 5:19 What's due soon 6:40 Working capital 7:59 Inventory is not cash 10:36 The most valuable asset 12:59 How to measure liquidity 16:04 What Daniel can do 17:37 Check your own business 18:37 Worth vs survives Numbers used in the examples: Daniel's Woodworks and Ana's cleaning company are illustrative examples, not real businesses. Daniel's balance sheet: cash $20,000; receivables $120,000 (hotel $90,000 in 60 days, others $30,000 this month); inventory $210,000 (lumber $60,000, finished furniture $150,000) = current assets $350,000; equipment $200,000 and building $450,000 = long-term assets $650,000; total assets $1,000,000. Liabilities: payables $110,000, wages and payroll taxes $40,000, credit line $120,000, current part of the loan $30,000 = current liabilities $300,000; long-term loan $350,000; total $650,000; equity $350,000. Working capital $50,000; current ratio ≈ 1.17; quick ratio ≈ 0.47; cash ratio ≈ 0.07. Next 30 days: $50,000 in, $150,000 out, a $100,000 gap. Cash used for long-term assets: $70,000 down payment + $120,000 CNC router = $190,000. A quick ratio near 1 and a current ratio above 1 are rough, industry-dependent guides, not rules. Sources: Standard definitions of current assets, current liabilities, working capital, current ratio, quick ratio and cash ratio (e.g., Investopedia). For education only. Not financial, tax or legal advice. If this helped, subscribe. Next: the cash conversion cycle, and how to get your money back faster. #business #cashflow #smallbusiness