Whether you’re a funded startup calculating your ‘runway’ until the next funding round or a self-funded business aiming to be profitable, cash flow is essential for any business’s survival.
Understanding and managing your cash flow is a critical task of any founder or executive, and an area where most businesses need professional support.
In this post, we’ll cover what cash flow is and what inhibits it, and then we’ll give you practical tips on how to combat the enemies of cash flow.
Once you understand these basics, you can read more about how to further understand, achieve and maintain a healthy cash flow.
Firstly, what is cash flow management?
Simply put, cash flow management is:
- Knowing what cash has come into the business
- Knowing what cash has gone out of the business
- Actively trying to collect cash quicker
- Planning cash outflows to optimise your business cycle
- Maintaining a sufficient cash buffer for business cycles and unexpected events
Most businesses without a cash buffer got severely caught out in 2020 when lockdown happened, or before that when the 2008 financial crisis hit. There will always be different, unexpected events, but the principle is the same – good cash flow management helps you stay in business.
Ten things that can negatively impact cash flow and how to combat them
1. Problem: Making decisions based only on a bank balance
The bank balance is the ultimate source of truth about how much cash you have available right now, but it does not tell you what you have left to spend or invest once all your current obligations are taken care of. Some business owners build up an intuitive understanding of their business and check the balance at key stages (after paying salaries, for example), but this is not the best way to manage your cash flow.
Solution: Master your month with a cash flow forecast
A cash flow forecast is a tool that estimates the money coming in and going out of your business over a specific period. It helps you have a realistic discussion about your budget versus actual performance, such as identifying areas where you spent more than expected or didn’t collect as much cash as hoped. This allows you to track what worked and what didn’t, and to project your month-end balance with greater confidence next month.
2. Problem: Customers delaying payment
When customers don’t pay on time, your cash flow takes a direct hit. You may have made the sale, but covering day-to-day expenses becomes a struggle without the money in your account. Late payments create a ripple effect—delaying your own payments, limiting growth, and adding stress to yourself and the team.
Solution: Supercharge your cash collection
One of the best ways to ensure customers pay promptly is to embrace cloud-based accounting tools like Xero, Shopify or Chargebee. With features like online invoicing, automated reminders, and built-in payment and cash collection options, you make the payment process quick and convenient. The easier it is for customers to pay, the less likely they are to delay—helping you keep your cash flow steady and predictable.
3. Problem: Suppliers are paid too quickly
Everyone wants their payment as soon as possible— but ensuring you run a sustainable, cash flow positive business is essential. Paying suppliers too quickly can leave your cash flow stretched, especially if money isn’t coming in as fast as it’s going out. While suppliers may want immediate payment, doing so without planning can make it harder to cover essential expenses like payroll or rent.
Solution: Delay certain payments and negotiate with suppliers
A powerful strategy to maximize your cash flow is by prioritising payments and negotiating with suppliers. Flip the script. Don’t let suppliers dictate your payment terms. Take control and negotiate terms that work for your business — many suppliers are willing to accommodate if you maintain clear, respectful communication. Aim for terms that support your cash flow without straining the relationship, and stick to them. Once agreed, plan your payment schedule around your business’s most pressing needs, like payroll or stock.
4. Problem: Seasonality is not taken into account
If your business sells beach holidays, chances are sales will dip in winter and boom in summer. That’s seasonality—and if you don’t plan for it, your cash flow can suffer. Think of it as creating a financial safety net and set money aside during the busy months to cover the leaner ones.
Solution: Plan ahead and get creative
This may sound obvious, but start by identifying your peak and quiet periods, looking back over prior years if possible, and then use those insights to plan. During busy months, build a buffer by setting aside extra cash to cover fixed costs when sales slow down. Create a seasonal cash flow forecast to anticipate shortfalls and adjust spending in advance. Look for ways to generate off-season income—like diversifying your product range or offering promotions during quieter times.
5. Problem: Failing to plan for tax payments
Tax might not be fun to think about, but avoiding it can land you in hot water. Even if your bank balance is zero, you may still have tax to pay, depending on local laws on what is classified as a tax deductible expense. A surprise tax bill can knock the wind out of your cash flow and leave you scrambling. The sooner you make peace with paying tax and build it into your planning, the smoother things will run. A simple system—like setting aside a percentage of every payment—can take the panic out of tax season.
Solution: Open separate bank accounts to save
A practical way to manage your cash better is to open separate accounts for key expenses like tax or staff bonuses. For example, set a rule to transfer a fixed percentage of each client payment into a dedicated tax account. This keeps your tax money out of your daily spending and ensures you’re ready when payments are due. The same approach works for other future costs.
6. Problem: Not having an umbrella for rainy days
Unexpected expenses—like equipment breakdowns, emergency repairs, or sudden supplier price hikes—can hit your cash flow hard if you’re unprepared. These surprise costs often come at the worst time and can throw off your entire budget. Building a buffer or emergency fund into your cash flow plan helps you weather the storm without derailing your operations.
Solution: Build a realistic buffer into your cash flow forecast
Start by looking back and reviewing last year’s expenses to spot patterns like services, machinery repairs, or once-off emergency costs. Use this insight to estimate a likely annual amount and then divide this by twelve. Set aside a small amount monthly into an emergency fund to cover surprise expenses. Make sure you have the right insurance in place to soften the blow of bigger, less predictable costs.
7. Problem: Accumulating bad debt
Bad debt happens when a customer doesn’t pay for a product or service you’ve already delivered. While the sale may look good on paper, the unpaid invoice means no actual cash has come in. Over time, bad debt can build up and severely hurt your cash flow, making it harder to cover your own expenses, pay staff, or invest in growth. It’s money you’ve earned—but can’t use.
Solution: Tighten your customer take-on process, and follow up on unpaid invoices
Stop bad debt before it starts. Always assess a client’s creditworthiness before offering credit, and don’t be afraid to say no if the risk is too high. Once credit is granted, stay proactive: send invoice reminders and follow up promptly. A firm but fair credit policy, along with clear payment terms, keep your cash flowing and your stress levels down.
8. Problem: Excess inventory that ties up cash
This problem can affect companies that manufacture goods as well as companies that resell goods. In both instances, warehouses are stocked with the product, and if too much of the product is placed in stock and the stock turnover is too slow, the product ends up sitting on the shelf, tying up cash and negatively affecting cash flow.
Solution: Fine-tune your stock inventory
Keep only the minimum amount of inventory needed for both manufacturing and resale operations. Your sales volume, forecasts, available cash, and how reliably your suppliers can deliver should guide your ideal stock level. Careful inventory monitoring is key—too much stock can drain your finances, while too little can result in missed sales and unhappy customers.
9. Problem: Making your prices too low
Small businesses sometimes sell their products and services at such low prices that they have little, or negative, gross margins. It’s crucial to have and understand a profit and loss statement. This scenario often happens in highly competitive environments with constant pricing pressures. It usually affects small business owners who do not have a clear understanding of their costs.
Solution: Review and tweak your gross profit margins
If you’re selling too cheaply, there may be little left to cover your operating costs—let alone grow your business. Start by reviewing each product or service to calculate its gross margin, which is the revenue less direct selling costs. Then, identify where you can raise prices without losing customers, or trim costs without sacrificing quality. Even small adjustments can make a big difference to your cash flow and long-term sustainability.
10. Problem: High overhead expenses
Overhead expenses are the costs of running a business that are not tied directly to selling a particular product or service. Examples of overhead expenses include items such as rent, telephone, utilities, etc. When overhead expenses get out of hand relative to the revenue of the business, your business’ cash flow is impacted. And, because overheads are persistent, they will continue to drag you down until you get them under control.
Solution: Trim the excess and rethink your overheads
High overheads can quietly nibble away at your cash flow, so it’s important to review them regularly. Start by asking the big questions—do you really need so much physical premises, or could you switch to an e-commerce model? Could you downsize or sublet unused space? Look at all your monthly dues and subscriptions—are you using them, or can they be cancelled or downgraded? Compare providers for better deals, and shop around for more affordable service contracts.
Our parting shot? Don’t bury your head in the sand. You have to be in the know for the cash to flow.
Reviewing your cash flow regularly is one of the simplest ways to stay in control of your business finances. To make it easy, use tools or apps you can access from your phone or laptop, and set aside a few minutes daily or weekly to check in on cash flow.
Even a quick glance at your inflows and outflows can help you spot issues early, make smarter decisions, and stay one step ahead. It’s a small habit that can make a big difference.
If you need support optimising your cash flow strategy, and implementing great cloud based software tools, we’re here to help.
Ready to take control of your cash flow and unlock your growth potential? Book a call today to discover how our tailored financial teams can transform your business.
