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How to Deal With Cash Flow Problems in Small Business [5 Ways] in 2023

Cash Flow problems in small business

Cash Flow

Steady cash flow is a crucial component in the success of a business. There is no question that a company’s cash flow management is the lifeblood of any business.  For your business to survive, it must generate enough cash from its activities to meet its current and future obligations.

Businesses fail when there are cash flow issues.  Generating revenue is not just about being able to meet your monthly invoices.  Realistically, you want to be able to pay yourself while growing the business.  Cashflow problems in business can cause sleepless nights and stressful days.

Cash is the tool you use to manage your day-to-day operations and pay bills like:

  • Rent
  • Insurances
  • Utilities
  • Employees
  • Stock
  • Inventory,
  • Raw materials
  • Tools


Big or small, old or new, cash flow problems in business suck!

If you’re now evaluating how to enhance your business cash flow, then you’ve come to the right place. We will address the worst cash flow mistakes business owners make and offer practical solutions to cash flow challenges.  Below outlines five effective ways to manage your cash flow to keep your business running smoothly.

Before we start, let’s answer some fundamental questions to address and understand why cash management is key to your business’s success. Here are some issues to watch.

The first question we need to answer is,

What cash flow problems Do I Look For?

In the most basic terms, cash flow problems have more liabilities than cash on hand to meet those payments necessary to continue your business operations. Low profits resulting from poor profit margins or actual losses can be the culprit.  Other issues include but are not limited to:

  • Overestimating the demand for your product, otherwise known as overcapacity
  • Over investment in hard, fixed assets that don’t provide a return on your investment or anticipated future sales
  • Too much stock or inventory
  • Extending too much credit to your customers
  • Seasonal or otherwise unexpected changes in the marketplace, think weather-related or recessions.
  • Overtrading which is common when you expand too rapidly


Second, let’s answer,

How can a business fix cash flow problems?

There are several steps any business owner can take to fix some, if not all, of the standard cash flow issues.  We’d suggest, at a minimum, looking at these fixes minimally on an annual basis if not more frequently depending on the cost controls you have in place with your accounting systems.

The easiest solution is to cut your expenses.  Set a minimum goal of 10% and look at each line item in your Profit and Loss statement to see what you can do to reduce if not eliminate some of those expenses.  Ask yourself if you can downgrade some of the services you use.  Try to renegotiate all of your contracts.  Take a look at this quarterly and commit to a steady diet of lower expenses.  Yes, it can be painful, but like diet and exercise, you need this to stay healthy.

Collecting payments faster while stretching out your payables is a perfect solution to cash flow challenges.  Be tough, stand your ground, and you might be surprised how you can gain agreement with your clients and vendors.  Think about getting rid of bad clients.  See if you can find ways to get them to pay faster.  You may think that you need every client in your books. This counter-intuitive technique of dropping bad clients may be quite liberating and allow you to focus on more profitable ones.

No one wants to see a reliable business shut its doors. Everyone wins when you can adequately incentivize your customers to pay faster while negotiating with vendors to stretch your payables for a short period.  Explain how it’s in their best interest and offer an incentive for doing so.

What Impacts cash flow in a business?

Proper cash flow management means taking a deep dive into your account’s receivables.  You need to look at the average amount of time it takes to collect outstanding payments due (a wonky term for most owners, the accounts receivable to sales ratio).  None of these stand-alone themselves, and unless you have an MBA, you might be better off discussing your situation with a qualified accountant or CPA.  While in the short term, this may cost you a little bit of money, in the long term, it can get you the understanding necessary to make the changes for improvement.

Think about cash flow as dials on an instrument panel.  Turning one dial-up or down will directly and sometimes indirectly affect the other parts of your business.  It takes careful tuning to make sure one over-correction sends you spiraling out of control elsewhere.  You don’t need a business finance degree from Harvard to know that if your revenue decreases, this will negatively impact your available cash.  The adage of the number one reason most businesses fail is due to a lack of money or undercapitalization.

The #1 Reason Small Businesses Fail – And How to Avoid It. Cash flow. … In fact, 82% of small businesses fail because of cash flow issues. And while most small business owners agree cash flow is the #1 risk for small businesses, cash flow’s also a blanket term – a symptom, if you will – of several underlying causes.

1) Create a Cash Flow Forecast

A cash flow forecast is a planned prediction of how your business will perform. In other words, if you know that a particular week, month, or season generally brings in more or less revenue, you need to plan a way to maintain cash flow during those times. As you track expenses throughout the year, compare the actual numbers with your forecasted figures to adjust your estimates for the following year. It will help if you can determine your break-even point.   Knowing when you become profitable will not increase your cash flow. Having this as a goal helps you stay focused on the steps necessary to start making money.   This strategy leads to focusing on the management of cash flow and not profits.  Take care of the cash, and the profits will flow.

2) Audit Your Bookkeeping

Another great way to improve cash flow is by thoroughly analyzing your bookkeeping. Make sure you have a system to track all your expenses, invoices, and payments. An accounting system helps pick up impulse spending and other costs that are not specific to your bottom line and profitability.

For example, if you don’t have a precise record of each client, when their payment is due, and how much they owe you, then you may never get a payment from that client, and you will lose that revenue. If your bookkeeping is sloppy, you may not even realize this is a problem. Think about your favorite sports team.  Would they ever consider not looking at all the data and statistics to determine the value of a particular player?  Of course not, so why should you with your organization?

You should also keep a record of suppliers and how much they are charging you for their products. You may be able to find a better deal from someone else or renegotiate for a lower rate when you’ve already established a business relationship. Make sure you have detailed information about every business transaction that takes place. It will save you a lot of money and is an inexpensive way to improve cash flow.

3) Streamline Debt Collections

Next, take a look at your current debt collection process. Is there a way you can make it more efficient or effective? Is there a way you can incentivize on-time payments or discourage late payments?

You must also check all your due dates and ensure they line up. For example, if you owe a supplier, but your client didn’t pay, you may not have the cash flow needed for your expenses.

Question:  Are timely account receivables (A/R) or account payables (A/P) an ongoing challenge for your business?

Answer: If so, then invoice factoring or purchase order financing may be one of many funding solutions that will help you manage your cash.

One strategy is to get payable due dates to correspond with incoming cash flow by reaching out to your suppliers and service providers. They may even allow you to pay quarterly or semi-annually instead of monthly. You can also make it easier for clients to pay you more quickly by setting up online payments or auto withdrawals or offering a discount for early payments.

4) Reduce Expenses

Learning how to deal with cash flow problems in small businesses also involves reducing expenses. It is easy to let your overhead costs get out of control if you aren’t paying attention. Look for anywhere you can lower costs without sacrificing quality, and, cut out anything that isn’t completely necessary.

5) Get a Business Loan

A business loan is a great way to ensure you have plenty of cash flow during the early stages, or rough patches, of building a company.  Sometimes a business loan, whether it’s a short term loan or inventory financing can fix some of the worst cashflow mistakes

It can allow you to staff your operation fully, acquire enough supplies, produce enough products to sell, and so on. Having all of these things in place will enable you to grow and develop your company more effectively and efficiently for greater long-term success.

Like any of the strategies mentioned above, not all funding solutions work every time.  Talk to a professional who can help guide you through the process of getting a definite answer to your cash flow questions.

Contact Sunwise Capital

Do your expenses exceed your deposits?   Are your profits inconsistent?  Do you need a little more cash on hand to support growth and expansion?  If you answered yes to one of these questions, you might want to consider a small business loan.

SunWise Capital is a small business lender looking to help your business with its cash flow needs. When you apply for a small business loan, we can assist you with growth, renovation, new technology or equipment, additional staffing, and much more.

Contact SunWise Capital at 888.456.9223 for more information or to get started today!

Mark 7

Mark J. Kane, Founder & CEO of Sunwise Capital, is a distinguished entrepreneur with over 16 years in business financing. Beginning as a psychologist, he quickly became a trailblazing Hospital Administrator. Mark has built multiple ventures, notably accelerating a startup to $18M within months. His transition to Sunwise Capital stems from a deep-seated desire to empower business owners with strategic financial solutions. Recognized for his expertise, Mark's leadership at Sunwise Capital reflects his commitment to fostering business growth and success. Click the link to read more about the author.

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