, , ,

6 Cash Flow Mistakes That Can Sink Your Business

“Entrepreneurs believe that profit is what matters most… But profit is secondary. Cash flow matters most.” 

– Peter Drucker

“Entrepreneurs believe that profit is what matters most… But profit is secondary. Cash flow matters most.” – Peter Drucker

Cash is the foundation of your business. It supports every decision, from hiring employees and purchasing supplies to paying debt and investing in growth. Yet many companies overlook cash flow until it becomes a problem. According to the Federal Reserve’s 2024 Small Business Credit Survey, 51% of businesses cite uneven cash flows as challenges. The good news: with the right discipline, you can avoid common mistakes that put your company at risk.

Here are six of the most common cash flow mistakes — and how to prevent them.

1. Overestimating Sales 

It’s natural to be optimistic when planning for the future, but relying on overly aggressive sales projections can quickly leave you short on cash. If your budget assumes that every potential deal will close on time, you may not have enough liquidity to cover expenses when sales fall short.

Build both best-case and conservative scenarios. In your conservative model, identify expenses you could scale back, delay, or eliminate if revenue doesn’t meet expectations. Scenario planning gives you a clear plan of action rather than leaving you scrambling if sales underperform. A strong business budget can help provide that framework.

2. Overdue Customer Invoices

A sale isn’t complete until cash is collected. Overdue invoices tie up working capital and make it difficult to cover payroll and other obligations.

Review your accounts receivable aging report every month. Follow up promptly on late payments, and include clear consequences for late payers such as monthly finance charges in your contracts. Consistent enforcement is key; if customers learn there are no consequences for delaying payment, you’ll always be at the bottom of their priority list.

3. Mismatched Payment Terms

When your vendors require payment in 15 days but your customers take 45 days to pay you, the 30-day gap has to be funded by your own cash. If this mismatch continues, it creates chronic cash shortages.

Look for opportunities to renegotiate terms with both vendors and customers. If renegotiation isn’t possible, consider offering small early-payment discounts to customers as an incentive. For ongoing gaps, financing tools like invoice factoring may help, but always evaluate the fees carefully to ensure they don’t erode your margins.

4. Operating Without a Cash Flow Forecast

A bank account balance only shows today’s position. Without forward visibility, you risk being caught off guard by upcoming deficits.

A rolling cash flow forecast projects future inflows and outflows, giving you time to plan. With this visibility, you can anticipate when you’ll need additional cash, adjust spending, or arrange financing in advance. Forecasting also gives you confidence to make growth decisions, such as hiring or investing in new equipment, knowing the impact on liquidity.

5. Failing to Prepare a Backup Plan

Even with strong forecasting, surprises happen: a key customer delays payment, supply costs rise, or economic conditions shift. That’s why a financial safety net is essential.

Aim to keep at least three months of operating expenses in reserve, set aside in a liquid, low-risk account. In addition, establish a line of credit while your financials are strong, not when you’re already under pressure. Access to emergency funds provides flexibility and peace of mind when unexpected challenges arise.

6. Not Knowing Your Numbers

You can’t manage what you don’t measure. Many business leaders focus on generating revenue but don’t dedicate time to financial management. The result: limited visibility into risks and missed opportunities to correct course.

At minimum, review your monthly cash flow statement and profit and loss statement. Together, these reports show where cash is coming from, where it’s going, and whether operations are sustainable. Go a step further by tracking key performance indicators (KPIs) such as days sales outstanding, operating cash flow, and gross margin. These insights highlight risks early, giving you time to act before a crisis develops.

The Bottom Line

Healthy cash flow doesn’t happen by accident. It requires forecasting, disciplined collections, careful management of payment terms, and a solid backup plan. By avoiding these six mistakes, you’ll protect your company from unnecessary surprises and position it for sustainable growth.

For additional ideas on strengthening your finances, explore these five essential financial tips. And if you’d like expert guidance in building cash flow discipline into your business, consider working with a seasoned financial partner. An experienced CFO can help you design forecasts, improve collections, and ensure you always know where your business stands financially. To learn more, schedule your free financial consultation.

, ,

Turning High-Cost Debt Into Sustainable Business Growth

The Challenge: Financing Growth Sustainably

A successful professional services firm was experiencing rapid expansion. Demand for her expertise was high, and she needed to hire additional staff to support her growing client base. However, without clear financial forecasts or sufficient cash reserves, she risked overextending the business and putting sustainable business growth at risk.

To make matters more difficult, she carried high-interest debt from online lenders, including some loans with rates above 30%. The burden strained her cash flow and made it difficult to invest in growth. She needed a strategy to stabilize the business and achieve sustainable growth.

Our Approach

1. Forecasting for Growth

Momentum CFO partnered with her to build a financial roadmap that combined profit and loss forecasting, cash flow forecasting, affordable business financing, and debt restructuring.


We began by preparing detailed profit and loss forecasts to project revenue, expenses, and profitability. These forecasts provided insight into how much new revenue was needed to cover additional staff and overhead.

Next, we developed cash flow forecasts to identify when cash would come in from clients and when it would go out for payroll, vendor payments, and debt service. By modeling multiple growth scenarios, she gained clarity on both profitability and liquidity—critical for making confident hiring and financing decisions. Many growing businesses struggle here, and simple missteps can put stability at risk. To learn more, see our post on common cash flow mistakes to avoid.

2. Securing Affordable Financing

Access to capital was essential, but the existing loan terms were unsustainable. Leveraging our lender network, we guided her through the application process and presented financial projections that highlighted her ability to repay responsibly. This positioned her company as a lower-risk borrower, allowing her to replace high-cost online loans with a new facility at less than 5% interest—a dramatic improvement in financing terms.

3. Reducing the Cost of Debt

With new funding secured, we advised her on consolidating and refinancing high-interest obligations. This reduced her cost of debt by more than 75%, saving five figures in monthly interest payments. Beyond the immediate financial relief, the lower payments freed up working capital for reinvestment in staff and client service.

Even small changes in borrowing costs can make a big difference. Explore why in our article on How Interest Rates Impact Your Business.

The Results

  • Five-figure monthly savings from reduced interest expense
  • Improved cash flow, creating flexibility to hire staff and manage payroll confidently
  • Affordable financing that replaced predatory lending with long-term stability
  • Strategic visibility into how future growth decisions would impact profitability and liquidity

The Bottom Line

By combining rigorous P&L forecasting, cash flow forecasting, and access to affordable financing, Momentum CFO transformed an unsustainable debt burden into a platform for expansion. Today, our client’s professional services firm has the staff, cash flow, and strategic tools in place to scale responsibly.

This case study illustrates how fractional CFO services can help businesses reduce debt costs, strengthen cash flow, and achieve sustainable business growth.

,

Tips to Improve Cash Flow for Business Owners

Tips for Improving Cash Flow

Cash flow is one of the biggest sources of stress for business owners. While cash management is essential to a healthy business, it is only one of the aspects business owners need to address to have a healthy and profitable business. From getting a loan to collecting aging accounts receivable, there are many ways to improve cash flow.  Here are a few that any business can incorporate, even when they’re flush with cash. Need to hire? Add inventory? Move? Cash is king. Healthy cash flow will put you in the driver’s seat to make strategic moves, and be a stronger negotiator. Best of all, more cash reduces stress.

Let’s examine some easy-to-implement strategies for improving cash flow:

Stay on top of what you are owed

  • Can you invoice sooner to better match the timing of work performed?
  • What about the invoice cadence?  Consider invoicing semi–monthly versus monthly.
  • Make it hurt for them to pay you late.  It hurts you, be clear about penalties for late payments.
  • On large projects, ask for a deposit for materials.
  • Require payment in full before you release the final product.
  • Be precise with billing.  If you’re not keeping track, you may be missing out on the money you are owed.
  • Set up ACH, and take the thought out of bill pay by having your customers on an autopay option (incentivize this!)

Put off paying others until the last minute

  • Who needs to be paid first and why? Be sure you’re paying the accounts with penalties first and putting off more lenient ones until your cash flow recovers.
  • Ask for an early pay discount wherever you can.
  • Use online bill pay to pay at the 11th hour.

Use debt to your advantage

  • Refinance old debt.
  • Look at alternative lending options.  Consider factoring, or accounts receivable loans.
  • Pay as many vendors on a credit card as possible. Bonus: You’ll get an extra month to pay and points for flights!

Look at expenses and prices

  • It may be time to increase pricing.  Have your costs gone up? When was the last time you increased prices? 
  • Ask vendors what you can do for a discount. Recurring payments? ACH? a longer contract? You’ve gotta give to get.
  • Partner with others in your industry. Volume purchases or referring companies can get you favorable discounts.

Get the whole company on board

  • From the assistant to the CFO, get the whole team on board with a rolling 12-month cash flow forecast. Many small businesses fail due to a lack of planning and control over cash resources.  Having a more detailed 13-week cash flow plan can give you a heads up before you’re really strapped for cash. 
  • Segment suppliers, customers, and inventory. Don’t try to tackle your cash flow as a whole. Do you have too much cash tied up in products that sell seasonally?
  • Enlist the help of an experienced CFO to set you up for success so you can have more time to focus on running your business. Enlisting an outside expert will generate much more cash than it will cost.
  • Ask everyone for ideas on where you can cut back.  You may be spending on software that everyone hates or a retreat no one wants to go on.  Ask and listen.
, ,

Coping With the Coronavirus Cash Flow Crunch

If you’re like most small business owners, you are suffering from cash flow challenges due to the coronavirus pandemic.  With lots of money going out the door and much less coming in, what should you do to cope with the coronavirus cash flow crunch? 

In this article, we’ll discuss four critical steps to take to ensure your business survives this unprecedented time:

  1. Forecast cash flow
  2. Adapt your business practices to generate income
  3. Cut costs
  4. Apply for financial assistance programs

1 | Forecast Cash Flow

Cash deficits are the #1 reason businesses fail. COVID-19 is exacerbating the problem. How long will it take for your business to run out of cash if you have reduced or no income in the near future? You will surely feel stressed and anxious if you don’t have a good handle on how much money you need to sustain your operations. 

The solution is a cash flow forecast that predicts future inflows and outflows of cash.  By looking ahead, you’ll eliminate the much of the uncertainty about the cash you’ll have on hand next week or three months from now.  Not sure of how to set this up?  Reach out and we can help! 

Remember, do not manage cash simply by checking your bank account balance. A bank account balance is simply a snapshot in time that doesn’t provide insight into how much cash you’ll have in the future.   

Want to set up your own cash flow forecast? Great! Here’s how to create a basic cash flow forecast:

  • Start with your beginning bank account balance for the time period at hand, whether it’s the current week or month. 
  • List all your inflows of cash from sales, loans, or other sources. 
  • List all your outflows of cash such as payroll, rent, and credit card payments. 
  • Add your total cash inflows to and subtract your total cash outflows from your beginning bank balance. Then you will have a forecast of your ending account balance for the time period. 

Still feeling overwhelmed, don’t have a bookkeeper, let alone a CFO?  We offer services for both startups and small businesses. In addition, we already have experience helping businesses reopen and bringing them out of their cash flow crunch due to COVID-19. 

2 | Adapt Your Business Practices to Generate Income

Many states have ordered non-essential businesses to close. If your business was forced to close, and you are still suffering a loss of income, it’s time to get creative.  Brainstorm how you can continue to offer your products and services in a different way. For many, this many mean switching to e-commerce services or product sales. 

Do you typically meet clients in person? Determine if you can deliver your services online via video conference instead. Were you selling products at a storefront? Well, you might be able to promote digital gift cards or offer delivery services! 

Either way,  set up safe, socially-distanced options for your customers to continue to work with you. Stay top of mind. And, don’t overlook the power of social media to do this. Offer special promotions to keep clients engaged. 

Be sure to stay on top of your accounts receivable and follow up with customers who are late on payments. Bill customers as soon as you deliver your product or service. Consider using a factoring company (factor) to get an advance on the receivables your customers owe you before their payments are due to you. For more information on factors, see our article on cash flow. 

3 | Cut Costs to Increase Cash Flow

If you’re suffering from a severe cash-flow shortage, cost-cutting is essential. What should you do? First, reduce or eliminate all non-essential expenses.  Postpone major purchases. Sell excess inventory. Delay payments to vendors as much as possible. 

Rent and payroll are the two biggest operating expenses most businesses incur. Ask your landlord or mortgage lender if you can defer payments to a future date. Some lenders are offering rate reductions on existing debt. Payment deferments of up to six months are available on Small Business Administration 7(a) and 504 business loans and microloans.  Learn more about SBA loan deferments. 

Lastly, in this exceptionally low-interest rate environment, consider consolidating and refinancing any existing debt at a lower rate to save on interest expense. Contact your lender or finance professional for assistance. 

To learn more about how we’re helping businesses reopen post COVID-19, contact us at 858.284.0314 or schedule your free financial consultation.

4 | Apply for Financial Assistance

The Small Business Administration’s Economic Injury Disaster Loans (EIDLs) and the Paycheck Protection Program (PPP) forgivable loans are federal financial assistance programs available to small business owners. 

SBA Economic Injury Disaster Loans are available to businesses and non-profit organizations suffering losses from COVID-19. The funds from disaster loans can be used to pay your employees, vendors, and creditors.  Disaster loans provide up to $150,000 in assistance for business owners and have favorable terms including low-interest rates, and long payback periods.

The Paycheck Protection Program provides forgivable loans to small businesses to pay their employees during the pandemic. The loan amount is based on 2.5 times your average monthly payroll cost. The entire loan amount will be forgiven (you don’t have to repay it) if you use the proceeds to pay for payroll costs, rent, mortgage interest, and utility costs and you maintain staffing and compensation levels. 

Contact your local bank to find out if it is participating in the program.  Get all of the details about the Paycheck Protection Program.

In addition to exploring federal assistance programs,  research financial assistance programs that are specific to your industry and location. Special funds have been established for businesses in various industries. In some areas, local government agencies are also providing assistance. 

For example, the City of San Diego’s Small Business Relief Fund is available to local businesses affected by COVID-19. The fund provides grants and forgivable or low to zero interest rate loans to eligible small businesses. 

Final Thoughts on Increasing Your Cash Flow

This is a stressful time for most small business owners as we are all navigating uncharted waters. Don’t hesitate to drop us a message about how we might be able to work together to get you through this cash flow crunch.

, ,

The Paycheck Protection Program

Editor’s note: This article was last updated on June 9, 2020. It reflects loan forgiveness changes outlined in the Payment Protection Program Flexibility Act.

If you’re like many small business owners, you may be struggling to retain employees during the COVID-19 pandemic. Fortunately, federal financial assistance programs can help. In this article, we’ll discuss the Paycheck Protection Program (PPP). 

What is the Paycheck Protection Program?

The Paycheck Protection Program provides forgivable loans to small businesses. You may be wondering, how big of a loan can you get? Up to 2.5 times your average monthly payroll costs.

Ready for the great news? The entire loan amount will be forgiven if you meet the forgiveness criteria. Forgiveness means you don’t have to repay the loan.

Who can apply for the Paycheck Protection Program?

In general, small businesses with fewer than 500 employees, non profits, and veterans organizations. Sole proprietors, independent contractors, and self-employed individuals may also apply. 

In certain circumstances, businesses with more than 500 employees are eligible. Learn more about the SBA’s size standards for small businesses. 

Unlike other types of business loans, no collateral or personal guarantee is required for PPP loans. 

How must PPP funds be used? 

The primary goal of the Paycheck Protection Program is to help small business owners continue to pay their employees. 

Business owners must spend 60% of PPP funds they receive on payroll-related expenses. They must do so within 24 weeks after receiving the loan. No more than 40% of the funds can be spent on rent, mortgage interest, and utilities. 

Your loan won’t be fully forgiven if you don’t use all of your PPP funds on approved expenses. There are also restrictions on decreasing headcount or wages that may limit your ability to achieve 100% loan forgiveness. 

How do I apply for a Paycheck Protection Program loan?

Don’t delay in applying for a PPP loan. Loans are available on a first-come, first-served basis. The CARES Act initially allocated $350 billion to the Paycheck Protection Program. Later, lawmakers approved an additional $310 billion of funding.

Most lenders began accepting applications for Paycheck Protection Program loans in early April 2020. Which organizations can accept PPP applications? SBA lenders, federally insured depository institutions, and other regulated lenders approved by the Treasury. Find an approved lender here. 

First, see if you can apply with the financial institution you bank with. Some lenders will only take applications from their current customers. They may also require borrowers to meet other criteria. This may include having an existing lending relationship with them. 

If you don’t qualify, you can still apply with another lender that has different borrowing requirements. 

What if my PPP loan isn’t forgiven?

If you’re required to repay your loan, repayment starts 6 months after receiving the funds. 

Payments are deferred for 6 months. But, 1% annual interest will begin accruing immediately. Full repayment is due 5 years after receiving the loan. There is no pre-payment penalty for repaying it sooner. 

About Momentum CFO

Momentum CFO is a boutique firm specializing in outsourced Chief Financial Officer services for small to mid-size businesses. We bring the benefits of Fortune 500 financial expertise to your business without the expense of hiring a full-time CFO. 

To learn more, contact us at 858.284.0314 or schedule your free financial consultation.