A profitable business can still struggle financially.
One of the biggest reasons is poor cashflow management.
Many business owners focus on sales and profit, but cash is what keeps the business running day to day. It pays suppliers, wages, tax bills and unexpected expenses.
The good news is that many cashflow problems are caused by habits that can be improved.
Avoiding a few common mistakes can make your business more resilient and give you greater confidence when making financial decisions.
1. Waiting too long to invoice
The longer you wait to send an invoice, the longer you’ll wait to get paid.
Develop a routine of:
- Invoicing immediately after work is completed
- Using clear payment terms
- Sending invoices electronically
- Confirming customers have received them
Fast invoicing often leads to faster payments.
2. Ignoring overdue invoices
Many businesses are reluctant to chase customers.
Unfortunately, unpaid invoices don’t usually solve themselves.
Create a process for:
- Weekly debtor reviews
- Reminder emails
- Follow-up phone calls
- Escalating overdue accounts when necessary
Good credit control protects cashflow.
3. Spending money reserved for tax
Money sitting in your business account doesn’t necessarily belong to your business.
Set aside money regularly for:
- VAT
- Corporation Tax
- PAYE
- National Insurance
Keeping tax money separate avoids nasty surprises later.
4. Relying only on your bank balance
A healthy bank balance doesn’t always mean your business is financially healthy.
You should also monitor:
- Outstanding invoices
- Upcoming supplier payments
- Payroll
- Loan repayments
- Future tax liabilities
Looking ahead is far more valuable than looking only at today’s balance.
5. Never forecasting cashflow
Many business owners only react when cash becomes tight.
Instead, create a rolling cashflow forecast that includes:
- Expected customer payments
- Upcoming bills
- Payroll
- Tax deadlines
- Planned investments
Forecasting allows you to spot problems before they happen.
6. Growing too quickly
Growth usually requires cash.
Hiring staff, buying equipment and taking on larger premises all increase costs before additional revenue arrives.
Before expanding, ask:
- Can the business afford it?
- Do we have enough cash reserves?
- What happens if sales are slower than expected?
Sustainable growth is usually healthier than rapid growth.
7. Not reviewing your numbers regularly
Good decisions rely on good information.
Review your financial reports every month, including:
- Profit and Loss
- Cashflow
- Outstanding debtors
- Business expenses
- Gross profit
Small problems are much easier to fix when they’re identified early.
Common cashflow mistakes
Watch out for these common habits:
- Sending invoices late
- Spending VAT money
- Never chasing overdue payments
- Growing without planning
- Ignoring financial reports
- Relying only on the bank balance
Changing just one or two of these habits can significantly improve cashflow.
Frequently Asked Questions
Why do profitable businesses still run out of cash?
Because profit and cashflow are different. Money may be tied up in unpaid invoices, stock or future tax liabilities.
How often should I review my cashflow?
Ideally every week, with a more detailed review each month.
What’s the easiest way to improve cashflow?
Invoice promptly, chase overdue payments and regularly forecast future cash movements.
Final thoughts
Cashflow is one of the most important parts of running a successful business.
By improving a few everyday habits, you can reduce financial pressure, make better decisions and put your business in a stronger position for future growth.
At Merranti Accounting, we help business owners improve cashflow through proactive bookkeeping, management reporting, forecasting and practical business advice throughout the year.
Written by Steve Watts
