Strategies to Manage Small Business Cash Flow Problems

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If you've ever found yourself struggling to meet your financial obligations or facing a lack of funds, you're experiencing what is called ‘cash flow problems.’

Cash flow is the movement of money in and out of your business. When you have positive cash flow, you're making more money than you're spending. But if you have negative cash flow, you're spending more than you're making, which demands immediate attention.

Key takeaways

  • Cash flow is the money going in and out of your business. 
  • Negative cash flow means you’re spending more than you’re earning. Positive cash flow means you’re earning more than you’re spending. 
  • Strategies for managing cash flow include using a business budget, boosting sales by upselling and cross-selling, reducing expenses, managing promptly, and exploring financing options such as business credit cards.
  • This blog is for small business owners looking for tips on managing their cash flow.

Understanding small business cash flow problems

Here are some common causes of cash flow problems in small businesses:

Irregular income

A small business will rarely receive exactly the same amount of income each month, but are likely to have a similar number of outgoings each month; big fluctuations in income can impact cash flow. Think about a graphic design agency, for instance. They might have months with lots of projects and income, while other months are quieter. 

High expenses

If you're investing heavily in your business, purchasing new equipment, upgrading your workspace, or investing in marketing. While investing in your business' growth is essential, overspending can lead to cash flow problems as you're spending more money than you have in reserves. 

Late payments

Failing to send your invoices on time or having customers who regularly pay late can create a ripple effect of financial challenges; it can make it difficult for you to cover your operational expenses, purchase stock, or invest in growth opportunities. 

Seasonal fluctuations

Small businesses often experience fluctuations in their income. For instance, think of an ice cream parlour – it probably makes more money during the summer than in the winter. These ups and downs in income are known as ‘seasonal fluctuations’ and can impact your cash flow.

Thinking sales = cash flow

Many people think that when a company makes sales, they have money in their bank account right away. However, that's not always the case. Sales only turn into cash when customers have actually paid for the products or services and that money is in your account. So, just having sales on the books doesn't mean the company has money on hand to pay its bills.

Sometimes it can feel like there's a new story every day about someone being scammed out of their hard-earned money. Businesses large and small are targets for scammers, who often use sophisticated methods to trick their victims. Here are just a few of the most popular business scamming methods.

The impact of cash flow problems

Cash flow problems can really mess up a business. They make it hard to do business smoothly and meet financial commitments. Let's look at some of the main problems caused by cash flow issues:

Inability to pay bills and suppliers

Cash flow problems can lead to trouble paying your bills and suppliers on time. For instance, imagine running a small bakery. When you can't pay your supplier for essential ingredients, like flour and sugar, they will stop providing you with those items. This disrupts your business, damages your reputation, and can result in extra fees and interest charges. It can also damage your credit score if you default on your business credit card payments, making it harder to get loans or credit cards for future business needs. In essence, cash flow problems can create a chain reaction of challenges for your business.

Accumulation of debt

Cash flow problems often mean businesses borrow money to pay bills. While this can help short-term, it can cause problems later. Getting into debt through loans or credit lines can mean paying more interest, making it tougher to bounce back from cash flow troubles.

Too much debt can harm a company's finances. It reduces the ability to invest, innovate, or adapt. This cycle of borrowing can weaken financial stability and limit future growth

Missed growth opportunities

A healthy cash flow is crucial for business growth. It allows companies to invest in new ideas, expand into new markets, and develop new products. When cash flow is tight, these growth plans often get postponed or dropped.

Missing out on growth opportunities can have long-lasting effects. Competitors might take advantage and gain a bigger market share. Businesses struggling with cash flow problems end up focusing on short-term survival instead of long-term growth, which hurts their competitiveness.

Identifying cash flow issues

Here are some steps that can help you spot these cash flow problems early: 

Regularly reviewing financial statements

One of the first steps in identifying cash flow issues is to regularly review your financial statements to understand your cash flow cycle. To figure out your cash flow cycle, you need to know how long it takes to turn your everyday work into money. This includes the time it takes to get the things you need, make your products or services, sell them, and get paid.

If your business has a short cash flow cycle, it means you get money quickly, which is great for paying your bills and starting the whole process over again. When you have frequent cash flow cycles, it means your business is running efficiently because you can see the results of your work sooner.

To understand your cycle, review your income statements, balance sheet, and cash flow statement. These documents provide a snapshot of your business's financial health and can help you spot trends and anomalies.

Key tips for reviewing financial statements:

  • Compare historical data: Compare current financial statements with past periods to identify any significant changes or trends.
  • Analyse key ratios: Calculate and analyse important financial ratios like the current ratio, quick ratio, and debt-to-equity ratio to assess your liquidity and financial stability.
  • Identify seasonal patterns: Recognize any seasonal fluctuations in revenue or expenses that could impact your cash flow.
  • Scrutinise expenses: Review your expenses for any unnecessary or excessive costs that can be trimmed to improve cash flow.

Tracking accounts payable and receivable

Your accounts payable is the money you owe to suppliers and creditors, while accounts receivable is the money owed to you by customers. Monitoring these accounts can help you identify potential bottlenecks in cash flow.

Analysing cash flow projections

Cash flow projections are future estimates of your business's cash inflows and outflows. Analysing these projections can help you anticipate cash flow issues before they arise and take preventive measures.

Strategies for improving cash flow

When you have an accurate idea of your company’s cash flow, you can follow these simple strategies to increase cash flow:

Use a business budget 

If your business has busy and slow seasons or goes through periods of varying cash flow, having a monthly budget and a clear cash flow statement can help you see how much money you'll need each month to cover your regular bills. During the months when you make more money, you should save some to cover your expenses in the months when you make less. A monthly cash flow forecast can show you if you might run short on funds and give you time to find extra money if you need it.

Boost sales and revenue

The simplest way to get more cash is to sell more of your products or services. It's even better when you sell to people who already like what you offer. Here are two ways to do this:

  • Upselling: Offer a more expensive product to your current customers. For example, in a coffee shop, upselling could occur when a barista suggests to a customer ordering a regular coffee that they might enjoy a premium coffee roast. 
  • Cross-selling: Try to sell different products or services to customers. For example, a gym could sell a special training package to new members. E-commerce sites often show suggestions like "You might also like..." to encourage more sales.

Reduce expenses 

When you're trying to cut costs, many businesses start by trying to get rid of their biggest expenses, like stock, advertising, or staff. But this might not be the best idea because these costs are often essential to running the business. Instead, think about cutting smaller, non-essential costs first, like cleaning or gardening services. Then, check your regular costs, like rent and bills, to see if you can spend less, get better deals, or renegotiate contracts. If you're a good customer, your suppliers might be willing to help you out by offering discounts or extra services, especially if you buy a lot from them.

Invoice management

Sending invoices promptly and accurately is crucial for keeping your business' finances in good shape. The faster you send out invoices, the sooner you'll get paid, which is great for your financial stability. If you often delay invoicing, think about using accounting software. Good accounting software helps you create precise and on-time invoices while reducing mistakes from manual record-keeping. It also gives you an up-to-date view of all your transactions and a digital record, which is handy for audits.

Access to financing

Explore various options, including business credit cards, loans, lines of credit, or partnerships with investors, to inject capital into your business. Keep in mind that having a documented business plan and cash flow forecast is essential when seeking external funding. 

Having access to a business credit card can provide flexibility in managing your cash flow, but make sure you pay close attention to the terms and conditions, as interest rates and agreements can have long-term implications. 

The bottom line 

Cash flow issues often happen when your income is unpredictable, your expenses are high, or customers pay late. These problems can make it hard to pay bills, and prevent your business from growing.

To prevent these issues, regularly check your financial statements, keep track of what you owe and what's owed to you, and plan ahead based on your cash flow.

Improve your cash flow by making a basic budget, selling more to your current customers, cutting unnecessary costs, sending invoices promptly, and considering financial assistance if needed.

Managing cash flow is an ongoing effort. By following these steps, you can maintain your business's financial health and set the stage for long-term success.


This does not constitute financial advice. If you wish to understand the suitability of a credit or debit card for your business, contact your financial advisor or accountant. 

Looking for a financial tool to help improve your business’ cash flow? Apply in minutes for the Capital on Tap Business Credit Card with limits up to £250,000. 

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