💭 Why Profitable Businesses Leak the Most Cash

When a business is under pressure, every euro is questioned. Cash forecasts are updated weekly, even daily. Every cost line is debated: “Do we really need this?” Everyone knows what’s in and what’s out.

But once profitability returns, that level of discipline fades fast. Margins improve, the bank balance grows but scrutiny quietly slips. It’s understandable: the business feels healthy.

The problem? That’s exactly when the leaks start.

The comfort trap

In strong companies, success will mask your inefficiencies.

I often see €5M–€15M businesses running at healthy profits on paper. But when I dig deeper and look under the bonnet, I find:

• The core business unit is highly profitable, but it’s subsidising one or two weaker divisions or offers.
  

• Delivery costs are spread across overheads, so margins look 10–15% higher than reality and very often I find loss making offers, quietly eroding cash with each sale.
  

• Discounts have become a habit and are not strategic because "we can afford it".
  

• New service offers or products are launched with little or no review on whether they are adding to the profits.
  

• And as growth accelerates, cash in the bank slows - more sales, but it's all tied up in working capital or extra costs.

Each leak by themself isn't dramatic. Instead they build slowly and are hidden under strong profits. This is the real danger and why it goes so unnoticed.

Why “we’re fine” is a dangerous phrase

When things are good, it’s easy to think:

“We don’t need to tighten up right now or we don't need to review this as of course we're making a profit in everything”

Let's say €10,000 is quietly leaking per month from your business in margins or overheads. That's €120,000 over a year. I'm sure you would love to see that be in your bank account.

If left unnoticed for two or three years, those leaks can equal the costs of new employees, new product launches or extra contributions into your own wealth.

Just be careful that your profits aren't masking the inefficiencies that are building up every day in your business.

The businesses owners I work are building discipline into good times.

I always say assume that hidden leaks exist and actively seek to identify them:

1. Run a margin reality check. Don’t stop at gross profit. Allocate true cost of delivery, reworks, selling costs, bonus payments. You may find your “25% margin” service is really running at single figures (or less)...
   
   

2. Separate core vs. new business lines. New offers are healthy but not if they silently drain cash from what is working well. Track them independently, not blended into the the full company numbers. Give them a timeline to succeed and don't be afraid to halt them if it is not working out. Sunk costs invested is no reason to continue a product that cannot generate sufficient profits.
   
   

3. Check recurring costs quarterly. Subscriptions and licences rarely used, duplicated software, retained services that aren't used. Even in €10M companies, I regularly find €50,000+ a year in non-value spend.
   
   

4. Critique your selling price. If you haven’t reviewed pricing in 18 months, inflation alone has eroded your margin. Are your sales team giving unnecessary discounts just because the profits are healthy? How well trained are they to identify other customer needs? Are you really charging your customer for everything or are you regularly completing out of scope reworks for free? Profit-rich businesses often leave money on the table simply because they can.
   
   

5. Protect your working capital. Strong profits don’t always mean strong cash. Watch debtor days, stock levels, and delays in invoicing your work in progress. These can be the silent leaks in your cashflow.

What you gain by tightening up now

Plugging leaks in profitable businesses isn’t about cost-cutting instead it’s about reclaiming your resources and capacity.

That extra cash can:

• Fund a business development person or more sales people

• Invest more in your leadership team so you can take a step back

• Build cash reserves for future acquisition or expansion

• Invest in new products and R&D

• Invest in more and better marketing

• Upgrade your systems now to be ahead of your market

Every euro recovered will strengthen the foundation for your next stage of growth.

Never wait for a crisis to start measuring

Crisis will force this discipline in your business but why would you wait for a crisis to unlock the hidden cash and reserves already in business?

If you only review your numbers when the pressure’s on, you’ll always be one step behind. So set the practices now in your business: what gets reviewed monthly, quarterly, and annually and who owns it.

That’s how you build a business that scales without springing leaks at every turn.

If your business is performing well but you haven’t looked under the bonnet recently, it’s really worth asking:

“If I had to defend every euro of cost - would I still spend it?”

That’s the starting point of every Business Leaks Review I do. It’s not about fixing a broken business, instead it’s about strengthening a successful one.....

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In case we haven't met...

I hope you enjoyed this week's newsletter edition. Hi I'm Sharon Kearns, a business growth consultant who has spent over 20 years helping Irish SMEs plug the leaks that drain cash, profit, and time.

I work with business owners who are great at driving sales but feel frustrated that the numbers don’t add up the way they should.

My role is simple: give you a clear view of where the leaks are with recommendations, build a practical scoreboard to track the right numbers each month, and help you build a growth plan to scale with confidence -without the chaos.

For a confidential chat feel free to email me on sharonkearns@sgk.ie