Late-paying customers. Equipment breakdowns. A sudden dip in sales.
For small business owners, instances like these can throw your cash flow completely off track, and fast.
If this sounds familiar, rest assured you are not alone. In fact, cash flow challenges are one of the most common realities, and stressors, of running a small business.
Fortunately, this cash flow guide is here to help.
Below, we’ll explain how cash flow works for SMBs, share how to spot warning signs early, and explore effective strategies for managing and even improving it.
Together with Bitty, let’s get your cash flow working for you, not against you!
Why Cash Flow Matters for Small Business Owners
Put simply, “cash flow” refers to the movement of money into and out of your small business.
Your cash flow involves inflows like sales revenue, as well as outflows such as expenses, loan payments, or costs of goods.
Ideally, you should always have a steady, reliable cash flow. That allows you to always have enough working capital on hand to pay rent, suppliers, employees, existing debts, and all other financial obligations—on time.
After all, steady cash flow is essential to everyday business operations.
A mechanic needs to order parts before doing work. A restaurant must buy inventory ahead of a busy long weekend. A food truck must prep and pay for food before events.
That said, it’s common for SMBs to experience negative cash flow, even occasionally. According to various studies:
- Worldwide, about 60% of SMBs have said they struggle with cash flow management.
- Nearly 22% of U.S. small businesses say they can’t cover basic bills due to cash flow issues.
- About 21% of SMBs indicated they could exhaust their cash reserves within six months.
Unfortunately, if you have a negative cash flow for just a month or two—such as during low season—it can put a big damper on your business.
Ultimately, your SMB needs readily available cash at all times, or you could risk missed opportunities, operational disruptions, and long-term financial trouble.
Signs You May Have a Cash Flow Problem
Is it possible your SMB is struggling with its cash flow?
While you probably already have a gut instinct, here are a few indicators that you may be experiencing negative cash flow, or headed that way:
- Frequently delayed/unpaid invoices: If a lot of your money is tied up in unpaid accounts, it can drain your available cash. Having “profits on paper” isn’t useful if the cash hasn’t entered your account.
- Regularly dipping into personal funds to stay afloat: Using personal savings, credit cards or lines of credit to cover ongoing business expenses may temporarily bridge gaps, but it’s not a sustainable option.
- Putting off ordering stock: Cash flow issues often force SMBs to delay inventory purchases, leading to missed sales opportunities and strained customer/supplier relationships.
- Paying off obligations later and later: Payroll is a common business expense, so struggling to pay employees on time is a major red flag. If you’re constantly coming up short, this means your cash inflows can’t support day-to-day operations.
- Delaying growth-related expenses: Continuously postponing equipment upgrades, hiring, or marketing initiatives may indicate you don’t have enough working capital. Turning down new business because you can’t fund it upfront is another warning sign.
If any of these issues sound familiar to your SMB, rest assured that they are not only common, but manageable.
Practical Tips for Improving and Managing Cash Flow
You don’t just want your cash flow to cover bills. Ideally, it should also empower you to build resilience in your business and be ready for growth opportunities.
Here are some simple and effective ways to strengthen your business’s cash position without disrupting your operations.
Use Tools That Work for You
There are many digital tools out there to help you manage your cash flow with minimal effort, empowering SMB owners to:
- Automate invoicing for faster billing.
- Track payments.
- Forecast future cash flow.
You don’t need to be a financial expert to use these tools. Rather, platforms like QuickBooks, FreshBooks, and Wave offer all-in-one, intuitive, easy-to-use solutions to help you stay organized.
Track Your Cash Flow Weekly
Use a platform, basic app, or even a simple spreadsheet to track money going in and out of your SMB each week. A regularly visited cash flow statement can give you much-needed visibility into:
- How much cash you can spend in the immediate future.
- Red flags that may be cutting into your cash flow.
- Whether spending cuts are required.
No need to aim for perfection—this activity is just about keeping your cash flow top-of-mind.
Develop and Update Your Small Business Plan
A solid business plan can help guide all kinds of things—including spending, hiring, and pricing decisions that directly impact cash flow.
Once you’ve written out your SMB business plan, be sure to review and update it regularly with current goals, revenue targets, and market conditions.
Accelerate Customer Payments
Delayed payments are a huge disruptor of cash flow, especially in sectors like SaaS as well as healthcare and professional services.
Rather than resort to the time-consuming task of repeatedly chasing customers, consider reassessing your credit policies and making some changes like:
- Checking customers’ credit before doing business with them.
- Monitoring regular customers’ payment behaviors throughout the relationship.
- Setting up automated alerts for overdue invoices.
- Charging late fees, or offering discounts for early payments.
Taking these actions can help ensure cash flows into your business more regularly, with fewer interruptions.
Control Operating Costs
Your operating costs, aka operating expenses or OpEx, are the day-to-day expenses you must pay so your business can run continuously.
First, distinguish between fixed costs that stay the same each month (like rent) and variable costs that fluctuate with how busy you are (like electricity bills and staff salaries).
Consider whether there are ways to reduce your variable costs during slower business periods. A few ideas may involve:
- Reducing staff hours.
- Boosting inventory levels.
- Limiting energy usage.
Small adjustments like these can make a huge difference to your cash flow.
Set Aside a Cash Buffer
To avoid dipping into personal funds or long-term cash reserves, create a separate cash-flow buffer to cover slower sales periods or unexpected expenses.
Even setting aside a few hundred dollars a month can add up over time.
This extra cash will give you more flexibility in times of crisis and opportunity, while keeping your cash flow more stable and predictable.
Cash Flow and Traditional Financing
There are plenty of cash-flow-related reasons why small businesses seek financing, from creating a cushion to get through a slow season, to covering upfront costs for fulfilling a large order or taking on a new client.
Of course, not every funding need is about filling a cash flow gap.
Some SMBs seek out financing to hire extra staff, invest in equipment, or expand to a new site. While their cash flow might be stable—even strong—the dollar-amount needed may be higher than what they have on hand.
But here’s the kicker: even if you do have a healthy cash flow, your SMB could still have a hard time securing traditional financing like loans.
Why?
Because banks and traditional lenders don’t tend to care so much about SMBs’ cash flow when approving funding requests. They tend to focus more heavily, and look more negatively, at factors including existing debt, insufficient credit history, or lack of collateral.
In other words, you might be running a healthy, growing business and still get a “no” from the bank because you don’t check every one of their boxes.
For many SMBs—especially newer ones with a limited track record, or those with seasonal or variable income—this can be a major barrier.
It’s also one major reason why more SMBs are increasingly exploring alternative financing options like revenue-based financing.
When Cash Flow Is Tight, Revenue-Based Financing Keeps SMBs Moving
Revenue-based financing (RBF) is one type of alternative financing that is much more accessible for SMBs, designed with their real-world needs in mind.
Here’s how RBF works after receiving a lump sum: instead of making fixed monthly payments (as you would do with a loan), you make repayments through a percentage of your ongoing revenue, with the dollar amount flexing to the monthly sales you bring in.
Put another way?
When you have slower months, you pay less; and during busier periods, you pay more. Ultimately, repayments align with what you’re actually earning.
Meanwhile, there are several others reasons why revenue-based financing is especially appealing to small businesses:
- Low barriers to entry: Because RBF funders focus on your future sales potential (and not so much on the rigid criteria required by traditional lenders), it’s easier for SMBs to access this type of financing.
- No equity or collateral needed: Unlike traditional loans, you don’t have to offer up ownership or business assets. Instead, you retain full control.
- Fast access to funds: It takes minutes to apply for RBF, and approvals often happen within 24 hours of submitting an application. This is ideal for when you need immediate working capital but don’t have ample time to round up pages upon pages of financial documents.
- Use for any purpose: Because RBF is flexible, SMBs can use it to enjoy a bit of breathing room, pay off existing large debts currently straining operations, support big-ticket growth investments, and more.
Whether you’re facing immediate cash flow challenges or embarking on a growth path, revenue-based financing adjusts to your reality—making it one of the most adaptable financing options available for modern SMBs.
Need a Cash Flow Boost? Bitty Has Your SMB Covered
Cash flow challenges don’t have to hold your SMB back. Likewise, you don’t have to face them on your own.
That’s because, at Bitty, we’re here for small businesses like yours.
With Bitty’s revenue-based financing, you can receive a lump sum of up to $500,000 in as little as 24 hours. No equity, collateral, long business history, or mountains of paperwork required.
Our products and services are fast, flexible, accessible, and built to support the unique needs of SMBs.Ready to take control of your cash flow and fuel your next stage of growth? Apply for revenue-based financing with Bitty today to discover how we can help you keep moving forward—on your terms.
