Cash flow problems rarely announce themselves. More often, they creep up slowly – a few delayed payments here, some unexpected costs there – until one day, you realise you’re struggling to meet your regular obligations.
Even successful, profitable businesses can find themselves facing cash flow challenges.
The good news? Most cash flow crises are manageable with the right strategy.
This guide will help you understand what’s happening, take effective action, and build a stronger business for the future.
Understanding Business Crises
A cash flow crisis develops whenever you can’t comfortably meet your payment obligations.
While this might sound straightforward, the reality is more complex and varies between different types of business.
For retailers, for example, cash flow problems often start with stock. You might have a shop full of valuable inventory but struggle to pay suppliers because sales have slowed.
Service businesses face different challenges – they might be doing plenty of billable work but face gaps between paying staff and receiving client payments.
Manufacturers can find themselves obliged to pay for materials and labour long before they can sell their finished products.
What makes these cash flow situations particularly challenging is that they can happen to perfectly healthy businesses. You might be profitable on paper but still face cash flow problems.
Watch for these early universal warning signs:
- You’re taking longer to pay suppliers than you used to
- Regular bills are becoming harder to meet on time
- Your overdraft limit feels tighter each month
- Tax deadlines are becoming more stressful
- You’re spending more time juggling payment dates
- Basic operational costs feel like a squeeze
- Your financial picture feels increasingly unclear
The earlier you spot signs of cash flow distress, the more options you’ll have for addressing them.
Immediate Responses To Cash Flow Issues
When you identify cash flow problems, your first priority is getting absolute clarity on your position.
This means looking beyond your bank balance to understand your financial situation in its entirety.
Start by gathering all your financial information. Look at every bank account, credit facility, and upcoming payment.
But don’t stop there – you need to understand your patterns. When do you typically receive payments? When do your major costs hit? How do seasonal changes affect your cash flow?
This investigation often reveals surprising patterns. You might discover that certain months are consistently tight because of how payment terms align. Or you might find that small, regular costs are adding up to create outsized pressure.
This information creates your baseline. It shows you exactly where you stand and helps identify your most pressing issues. Most importantly, it helps you avoid making decisions based on incomplete information.
Income Stream Management
Once you understand your position, it’s time to look at how money flows through your business.
This isn’t just about getting paid faster – though that’s important. It’s about understanding and optimising your entire cash cycle.
Start by mapping your cash flow patterns. When does money typically come in? When does it go out? Where are the biggest gaps?
This analysis often reveals opportunities you might have missed. A retail business might discover they’re ordering stock too early, tying up cash unnecessarily. A service business might realise their payment terms aren’t aligned with their costs.
The key is matching your cash inflows more closely to your outflows. This might mean adjusting payment terms, changing ordering patterns, or rethinking pricing structures. Any changes need to work for both your business and your customers.
Consider these key areas for improvement:
- Payment terms and methods for all customers
- Opportunities for deposits or stage payments
- Pricing structures and payment timing
- Invoice terms and collection processes
- Credit control procedures
- Stock management and ordering patterns
- Regular billing arrangements and subscriptions
The goal here isn’t just to get through the current crisis – it’s to build more resilient cash flow patterns for the future. This might mean having difficult conversations with customers or suppliers.
Handled professionally, these discussions often lead to better arrangements for everyone involved.
Managing Cash Flow in a Business Crisis
Good cash flow management isn’t just about chasing payments harder or cutting every cost you can find. Those knee-jerk reactions often make things worse.
Instead, you need to understand exactly where you stand and what options you have. Then you can make smart decisions that get you through the immediate pressure while building a stronger business for the future.
Essential Payments (First 30 Days)
First, look at what you absolutely must pay in the next month.
- Start with wages – whether you pay weekly or monthly, your staff need paying on time. Missing payroll creates bigger problems than just unhappy employees.
- Next come the suppliers you absolutely need to keep work flowing. If you’re a manufacturer, that might be your key materials suppliers. For a service business, it might be the software licenses you need to deliver work. For a retailer, it could be the suppliers of your best-selling lines.
- Then there are essential services and commitments – utilities, rent, equipment leases, loan payments. Some of these might have flexibility, but missing payments often triggers penalties or affects your credit status, creating longer-term problems.
- Finally, look at tax obligations. VAT, PAYE, corporation tax – especially any payments already overdue. HMRC generally shows some flexibility if you approach them before missing payments, but they’re much less accommodating once payments are late.
- Now check what money is definitely coming in. Look at your sales figures. Talk to customers about when they’re paying, not when payment is due. Be realistic – if a customer usually pays 2 weeks late, don’t assume they’ll suddenly pay on time just because you need the money.
The gap between these numbers – what must go out versus what’s definitely coming in – shows exactly what you need to solve.
Stabilising Operations (1-3 Months)
Once you’ve got immediate commitments under control, you need to look at why you got into trouble.
This means examining how money moves through your business and where problems are occurring.
Late payments from customers might mean your credit control needs tightening. Do you check credit references before offering payment terms? Do you have a systematic way of chasing overdue invoices? Are your payment terms appropriate for your type of work?
Rising costs might mean your prices need reviewing. When did you last increase them? Are you charging enough for rush jobs or special requests? Are some customers or types of work more profitable than others? Sometimes dropping your least profitable work improves cash flow more than chasing new business.
If you’re holding stock, look at your ordering patterns. Buying in bulk for a discount might seem smart, but if that stock sits on your shelves for months, you’re tying up cash that could be better used elsewhere. Can you negotiate better terms with suppliers instead? Or arrange faster delivery of smaller orders?
Consider your business model too. Low-margin work that pays quickly might be better than higher-margin jobs with long payment terms. Fast-moving stock at tighter margins can boost cash flow more than slow-moving premium items. The key is understanding which parts of your business contribute most to positive cash flow and optimising for those when appropriate.
Your stabilisation checklist should include:
- Reviewing all customer payment terms and patterns
- Analysing profitability by customer and product line
- Checking stock levels and ordering patterns
- Examining pricing structure and discounts
- Assessing business model effectiveness
- Improving credit control procedures
- Setting up proper cash flow monitoring
Building Future Resilience (3-12 Months)
Prevention matters more than cure. Once your immediate crisis passes, focus on building stronger foundations.
This means developing systems and habits that help you identify potential problems before they become serious.
- Start building a cash buffer. Even small regular transfers into a separate account help create a safety net for future pressures. Don’t treat this as profit – it’s working capital you might need.
- Watch your key indicators closely. Your debtors report shows which customers are slowing down on payments. Your stock system highlights items that aren’t moving. Your management accounts reveal trends in profitability and costs. These all provide early warning of potential problems.
- Stay ahead of tax obligations. Set aside VAT and corporation tax when you invoice, not when payment is due. Keep PAYE payments up to date. Tax debts often sink otherwise viable businesses because penalties and interest compound quickly.
Getting Expert Help
Managing cash flow effectively often requires experienced support, especially when dealing with immediate pressures while trying to build longer-term solutions.
At Double Point, we help businesses through these challenges every day. We’ll help you:
- Assess your current position accurately
- Develop practical recovery plans
- Improve financial monitoring systems
- Manage tax obligations effectively
- Build stronger business foundations
Don’t wait until problems become severe. Contact Double Point today for a practical discussion about your business finances.
We’ll help you develop and implement real solutions that work for your specific situation and build a stronger business for the future.
