Cash flow keeps a business alive. Profit helps the story, but cash pays rent, payroll, and vendors. Many owners feel the pinch even after a “good” month. The cause is not one big mistake, but small misses that repeat.
You can fix them with simple rules, clean reports, and weekly habits. Start with visibility; know what money is due in, what must go out, and what can wait. In this article, we’ll highlight five cash flow mistakes small businesses make.
Confusing Profit With Cash
Revenue on paper is not money in the bank. Accrual profit can rise while cash falls. Receivables, inventory, and prepaid expenses tie up dollars you cannot spend. Match the monthly profit to a simple cash bridge.
Start with the beginning cash, add collections and other inflows. Subtract payroll, taxes, loan payments, and vendor checks. The bridge shows where cash actually moved. If profit says “up” while cash says “down,” find the timing gaps and close them.
Letting Receivables Age Out
Slow collections strangle cash. Invoice the same day work is delivered, and be sure to add clear terms, deposits, and late fees. Offer easy payment links and ACH. Use credit limits for new or risky customers. Make sure to follow a firm cadence: a friendly nudge at seven days, a call at 15, a demand at 30.
Consider professional New Jersey bookkeeping services if this system keeps slipping. Clean accounts receivable makes the month-end calm. It also gives you leverage with vendors because you pay on time.
Paying Vendors Faster than Needed
You only gain from early-pay discounts if your margin and cash allow it. “2/10, net 30” can be smart when cash is strong and the math works. If not, use the full term and conserve the runway. Match payment timing to when you collect, as this keeps outflows in step with inflows.
Run weekly check runs, not ad hoc wires. Batch small bills, and prioritize payroll, taxes, and key suppliers. Negotiate after a track record of on-time payments, then ask for longer terms or better discounts. Tiny timing tweaks compound into real cash.
Treating Inventory like a Trophy
Too much stock is cash on a shelf. Forecast by item, not just in total, and shorten reorder points for fast movers and raise them for slow ones. Clear dead SKUs each quarter. Use vendor dropship or smaller, more frequent buys if carrying costs are high.
In addition, tie purchase approvals to a rolling 13-week cash view. Audit inventory each month until the shrinkage improves. Clean counts produce an accurate margin and better purchase order decisions. Your goal should be enough to serve, not to store.
Ignoring Taxes, Seasonality, and One-Time Hits
Quarterlies, sales tax, and renewals arrive on their schedule. Be sure to plan for them. Park a percentage of every sale in a tax bucket, and build a simple seasonality chart from the last two years. Add known spikes like annual software, insurance audits, or equipment maintenance.
Stress test the next quarter. What if revenue drops by 10%? What if a big customer pays two weeks late? Pre-decide trims you can make fast. Cash planning is less about prediction and more about options.
Endnote
Cash discipline is a habit, not a hero move. Run a weekly 30-minute cash huddle, update the 13-week forecast, the accounts receivable aging report, and the payables plan. Reconcile bank feeds before you act. Small, steady adjustments protect payroll and sleep
