Why Most Small Businesses Struggle With Cash Flow (And How to Fix It)
- KG Accounting
- Jun 17
- 4 min read
Updated: Jun 20
For many small business owners, running out of money doesn’t mean the business isn’t profitable — it means they don’t have enough cash on hand to cover expenses when they come due. Sound familiar? You’re not alone.
Cash flow is one of the most common pain points for small businesses and solopreneurs, and one of the least understood. According to a U.S. Bank study, 82% of small business failures are due to poor cash flow management or a lack of understanding about cash flow. It’s not always about profit — it’s about when money comes in, how fast it goes out, and whether you’re prepared to manage the gap.
What Is Cash Flow, Really?
At its core, cash flow is the movement of money in and out of your business. It’s not just about revenue or profit — it's about timing. You might make a sale today but not get paid for 30 or 60 days. Meanwhile, your rent, payroll, and bills are due this week. There are two types of cash flow to track:
Positive cash flow: More money is coming in than going out.
Negative cash flow: More money is going out than coming in.
Having consistent positive cash flow means your business can pay its bills, invest in growth, and handle the unexpected.
Why Small Businesses Struggle With Cash Flow
Here are the top reasons cash flow becomes a problem, and how to start addressing each one:
1. Inconsistent or Delayed Payments
If your customers take weeks (or months) to pay invoices, it can wreak havoc on your ability to operate. Many small business owners don’t follow up on overdue payments consistently, or they’re unsure how to set clear payment terms to begin with.
Tips for fixing this:
Require deposits or milestone payments for projects.
Set clear payment terms upfront (e.g., Net 15 instead of Net 30).
Use automated invoicing tools that send reminders and track payments.
Offer discounts for early payment to encourage faster turnaround.
2. Lack of Cash Flow Forecasting
Too many businesses manage finances based on their bank balance — not a forecast. Without a cash flow projection, it’s easy to overspend during good months and get caught in a crunch when revenue slows.
Tips for fixing this:
Use a simple spreadsheet or accounting software to forecast your cash flow at least 90 days out.
Factor in expected income, recurring expenses, one-time payments, and tax obligations.
Review and update your forecast monthly to catch problems before they snowball.
3. Overestimating Revenue (and Underestimating Expenses)
Many business owners assume if sales are up, everything is fine. But if your pricing doesn’t account for overhead, or you’ve got high client churn, your cash position may still be shaky.
Tips for fixing this:
Regularly review your profit margins and adjust pricing if necessary.
Know your break-even point — the minimum revenue needed to cover your fixed and variable costs.
Watch out for “phantom profits” — paper profits that don’t translate to actual cash in the bank.
4. Too Much Inventory or Spending Upfront
For product-based businesses, buying too much inventory in advance can tie up cash. Similarly, service businesses sometimes invest in tools, subscriptions, or marketing too early.
Tips for fixing this:
Evaluate your inventory turnover rate — are you holding more stock than needed?
Plan spending in phases and weigh each investment’s potential return.
Use lean budgeting techniques to stay nimble without sacrificing growth.
5. Not Separating Business and Personal Finances
It’s common for new business owners to blur the lines between personal and business funds. But this makes it nearly impossible to track true business cash flow — and often results in unnecessary withdrawals.
Tips for fixing this:
Set up a separate business bank account and pay yourself a regular draw or salary.
Use accounting software to track all business income and expenses accurately.
Stick to a budget for both personal and business expenses to avoid surprise shortfalls.
6. Not Knowing Your Numbers
Cash flow issues are often a symptom of not having financial clarity. Without up-to-date books or insight into what’s working (and what’s not), it’s hard to make informed decisions, especially in a crunch.
Tips for fixing this:
Keep your books clean and current — even if that means outsourcing.
Work with a bookkeeper or accountant who can help you review reports monthly.
Know key metrics: revenue, gross profit, net income, accounts receivable/payable, and cash reserves.
7. Not Having a Cash Buffer
Emergencies, slow seasons, or economic shifts are inevitable. If your business is always operating at the edge of its cash availability, one hiccup can create a major setback.
Tips for fixing this:
Build an emergency fund for your business — even starting with one month of expenses helps.
Funnel a percentage of each payment into savings until you reach a comfortable buffer.
Use your forecast to identify slow periods and adjust spending in advance.
How to Regain Control of Your Cash Flow
If you’re struggling with cash flow, the solution isn’t just working harder — it’s working smarter. Here’s how to start taking back control:
Get clear on your numbers: Use your financial reports to understand trends and risks.
Implement systems: Automation and consistent processes make a huge difference.
Think like a CFO: Look ahead, plan proactively, and make decisions based on real data.
You don’t have to figure it out alone. That’s exactly where a strategic accounting partner can step in to help.
Ready to Fix Your Cash Flow for Good?
At KG Accounting & Consulting, we help small business owners like you create clarity, reduce financial stress, and build a sustainable, profitable future. Whether you're dealing with inconsistent cash flow or planning for your next stage of growth, our expert advisory services are designed to meet you where you are — and help you move forward.
Schedule a Right-Fit Call Today — no pressure, just honest insight.