10 Cash Flow Problems (and Solutions) for Small Businesses

If you’re running a small business, chances are you’ve experienced cash flow problems at some point. The stress of not knowing if you’ll have enough to cover payroll, supplier payments, or office rent can keep you up at night. 

It’s frustrating to work hard, bring in sales, and see profits on paper, only to find yourself short when an unexpected invoice lands or an essential expense arises. 

You may feel alone in these struggles, but you have more company in that leaky boat than you realize. In Canada, 60% of small and medium-sized businesses (SMBs) report ongoing cash flow challenges. Look at your small business neighbours. Yep, they’re worried about this, too. This number is only slightly better for established businesses. According to Float data, 48% of SMBs that have been operating for 20+ years reported insufficient cash flow as a top financial challenge in 2024.

The good news? You’re not alone, and there are ways to take control. Plus, we get what it’s like running a small business in Canada. We’ve got you covered.

In this guide, we’ll walk you through the most common cash flow issues small businesses face, why they happen and—most importantly—how to solve them.

Common business cash flow problems

Cash flow problems are one of the biggest challenges small businesses face, and they can feel relentless. When cash runs low, every unexpected expense or delayed payment adds stress, making it feel like you’re always on the edge of a financial crunch.

Why are cash flow issues so common in small businesses?

A few patterns crop up when business owners dig into the dark corners of their cash flow management. (It’s okay, we brought flashlights.) Have a look at the list and see if these sound familiar.

Have you ever struggled with:

• Unpredictable revenue cycles that make it hard to plan ahead?
• Customers who delay payments, leaving you scrambling to cover your expenses?
• Large upfront supplier costs that tie up cash before you’ve even made a sale?
• Rising operating expenses that creep up month after month?
• Incomplete or poor financial forecasting leading to unexpected shortfalls?

Many small business owners feel like they’re constantly playing catch-up, shifting funds around and hoping nothing major goes wrong. 

We get it. But hope isn’t a strategy. Understanding what’s causing your cash flow struggles is the first step to fixing them. So, let’s dig in together.

How many businesses in Canada fail due to cash flow problems?

Cash flow problems impact your financial stability, but beyond that, they also affect your peace of mind. Every small business owner knows the sinking feeling of realizing that despite solid revenue, cash is tight again, and making it through the month will require careful juggling. In fact, 29% of small businesses ultimately have to close because they run out of money, and 67% of small business owners rely on personal funds to keep things afloat—an unsustainable strategy in the long run.

Fears about keeping your business in the black aren’t unfounded. Almost 20% of business owners surveyed have faced past bankruptcy or insolvency. How high is the risk of a business failing? It can vary, but these are not easy times. In the first quarter of 2024, insolvencies were up 87% over the year before, with experts warning of a high number of quiet business failures hiding behind that number.

Small business cash flow problems can pose real risks for business owners. Even if your business seems to be bringing in new customers and making plenty of sales, these signs can hide real troubles. Learning how to solve cash flow problems could be crucial to your business building the longevity you’ve dreamed of.

Business types prone to cash flow issues

We hate to be the ones to say it out loud, but certain industries are more susceptible to problems with cash flow than others. Common culprits include those that require large upfront investments, have long payment cycles or experience seasonal fluctuations. 

What might this look like in your business? Common examples include:

Construction firms

Long payment terms and high material costs create cash flow gaps. You may end up trying to cover multiple payroll cycles (and even overtime) long before you’re paid for a job.

Retailers and wholesalers

Balancing your stock levels is a juggling act. Holding too much inventory ties up cash, while slow-moving stock leads to liquidity issues.

Agencies or companies with extended payment terms

If you’re a recruiter, you may not be able to bill your client until you’ve completed the placement of a candidate. Payment delays from clients can disrupt payroll and make it difficult to operate smoothly.

Hospitality businesses

You may have months where business slows to a trickle. Seasonal variations impact revenue consistency, making it hard to cover fixed costs during slow months.

Startups

More invoices and fees? We haven’t billed a single customer! If this thought has tightened the tension around your skull more than once, this could be you. Heavy upfront costs before revenue kicks in can leave early-stage businesses tight for cash.

If your business falls into one of these categories, proactive cash flow management is critical.

10 common cash flow problems (and how to fix them)

While cash flow issues are common

1. Late customer payments

Many small businesses operate on tight margins, so when customers don’t pay on time, it can throw everything off balance—like famous Italian leaning tower levels of off balance. You still have bills to pay, employees to compensate and suppliers to keep happy. When you’re chasing overdue invoices, it takes time away from running and growing your business. 

Solution: Set clear payment terms, offer early payment discounts and use automated invoicing tools to follow up on overdue payments.

2. Revenue fluctuations

Not every business has steady income each month. Seasonal businesses or those affected by market shifts often experience unpredictable revenue cycles. You may have a great month followed by a slow one, making it tough to manage expenses consistently.

Solution: Build a cash reserve during peak periods, diversify revenue streams and forecast cash flow regularly.

3. Upfront supplier payments

Many businesses must pay suppliers before they generate revenue. This creates a cash crunch, especially for companies that need to invest heavily in inventory, materials or services before getting paid.

Solution: Negotiate better payment terms, explore just-in-time inventory management or use credit options to delay payments.

4. High overhead costs

Fixed costs like rent, utilities and payroll don’t go away, even when business slows down. If expenses keep creeping up while revenue stays the same, cash flow gets squeezed tight like a pair of too-skinny jeans.

Solution: Audit expenses, cut unnecessary costs and consider flexible lease options or remote work setups.

5. Poor financial planning

Many small business owners focus on sales and operations but overlook financial forecasting. Many have business acumen and strengths that may not include deep financial literacy. Without a clear cash flow plan, unexpected expenses or slow months can cause financial stress.

Solution: Use accounting software to track cash flow, create realistic budgets, and plan for potential shortfalls.

6. Expense management inefficiencies

Unmonitored spending by employees or disorganized expense tracking can drain cash reserves faster than expected. Without proper oversight, it’s easy to lose track of where money is going.

Solution: Implement an expense management system to monitor and control spending in real time.

7. Tax compliance surprises

Nothing disrupts cash flow like an unexpected tax bill, and with online access to everything, there’s no pretending anything got lost in the mail. Many small businesses underestimate their tax liabilities or miss filing deadlines, leading to penalties and financial strain.

Solution: Set aside tax reserves, use automated tax software and consult a professional accountant to avoid surprises.

8. Inventory mismanagement

Too much inventory means cash is tied up in unsold products, while too little inventory can lead to missed sales opportunities. Striking the right balance is essential.

Solution: Use inventory management software to optimize stock levels and reduce holding costs.

9. Emergency expenses

Unexpected costs like equipment breakdowns, legal fees or emergency repairs can drain your cash reserves overnight. Without a financial cushion, these expenses can be devastating.

Solution: Maintain a contingency fund and explore business insurance options to protect against unexpected expenses. You can even earn interest on those funds, if you opt for a high-interest yield account, like Float Yield, which offers 4%.

10. Access to credit

When cash is tight, having access to financing can make the difference between surviving and shutting down. But many businesses struggle to secure loans or credit lines when they need them most.
Solution: Establish good credit, explore business lines of c

How Float can help you manage cash flow with confidence

Float provides an all-in-one expense management platform that helps you track spending in real time, automate expense approvals and gain critical visibility into your financial health.

With Float’s corporate cards, you can set spending limits, automate receipt collection and prevent overcharges. This ensures that every dollar spent is accounted for and surprise expenses don’t catch you off guard. (Less panic means you get to spend a few weekends relaxing instead of transferring money around, hoping to cover everything.)

Float also helps you gain financial control by integrating corporate cards with real-time expense management. Unlike traditional solutions that encourage spending, Float is designed to help you spend smarter while offering up some pretty appealing rewards, like high-yield accounts. 

Proactive cash management is essential, but business cash flow problems don’t have to derail your business. The key is to stay proactive, monitor your finances closely and leverage the right tools to improve business cash flow management.

Looking for smarter ways to manage your business expenses? Explore how Float can help improve your cash flow visibility and control.

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