7 Business Cash Flow Management Mistakes in 8 Out of 10 Companies

I’ve been working with business owners for over 40 years, and I see the same cash flow screwups over and over. Smart people. Profitable companies. But they’re making business cash flow management mistakes that are completely avoidable – if they knew what to look for.

The pattern is always the same: “Business is good, but money’s always tight.”

These owners will show me their profit and loss statement – looks great. Then they’ll show me their bank account – looks terrible. They can’t figure out how a profitable business can be constantly short on cash.

Here’s what I’ve learned: running a business and managing cash flow are two completely different skills. Most owners are excellent at the first one and terrible at the second one. And nobody ever taught them the difference.

So let me share the 7 biggest business cash flow management mistakes I see. Maybe you’ll recognize yourself in one of them.

How do cash flow problems usually start?

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Before I get into the specific mistakes, people always ask me this question. The answer might surprise you: cash flow problems don’t start with a crisis. They start with small, seemingly harmless habits that compound over time.

Most small business cash flow problems begin when owners start treating profit and cash like they’re the same thing. They’re not.

Why cash flow management is important (and why most owners get it wrong)

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Here’s the thing about business cash flow management – it’s not optional. You can have the best product, the greatest customers, and a profitable business model. But if you can’t manage cash flow properly, none of that matters.

I’ve seen profitable businesses go under because the owner didn’t understand the difference between earning money and collecting money. Cash flow management isn’t just accounting – it’s survival.

Mistake #1: thinking profit equals cash

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This is the big one. Owners constantly ask me: “We made $25,000 profit last month, so why do I only have $1,200 in the bank?”

Actually, it makes perfect sense. That $25,000 “profit” included money customers still owe you, plus you bought equipment, plus you took money out for salary. The math works, but there’s no cash left.

Most owners think profit and cash should match. They don’t. Ever. Profit is accounting. Cash is reality.

Here’s what I tell people: profit pays the taxes, cash pays the bills. Guess which one matters more when payroll is due?

You can be profitable and broke at the same time. Happens all the time.

Mistake #2: flying blind on cash flow

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I ask every new client the same question: “What’s your cash position going to be 60 days from now?”

About 8 out of 10 have no idea. They’re managing week to week, sometimes day to day.

Then they call me in a panic because they “forgot” about the quarterly tax payment or the equipment loan that’s due. Forgot about a $40,000 payment. That’s not a cash flow problem, that’s a planning problem.

You can’t manage what you can’t see. If you don’t know what’s coming in and going out over the next 90 days, you’re driving blind. And eventually, you’re going to hit something.

The solution isn’t complicated – it’s just a simple 13-week rolling forecast. But most owners think it’s too much work or too complicated. It’s not. It’s 20 minutes a week that prevents thousand-dollar mistakes.

Mistake #3: being too nice about collections

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This one drives me crazy. Owners tell me their biggest customer is 120 days late paying, but they “don’t want to damage the relationship.”

The relationship is already damaged! They’re using your money to run their business while you pay 18% interest on credit cards.

I see this constantly. Good people who think being patient about collections makes them good business partners. It doesn’t. It makes them banks – banks that don’t charge interest.

Your payment terms aren’t suggestions. If you invoice Net 30, that means 30 days. Not 60. Not “when they get around to it.”

Here’s the truth: customers who respect you pay on time. Customers who don’t respect you… well, why do you want them as customers?

Mistake #4: paying everyone else before yourself

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This is especially common with Michigan manufacturers. They’ll pay vendor invoices within a week because they want to “maintain good relationships.” Meanwhile, their customers are taking 75 days to pay them.

So they’re paying out cash in 7 days but collecting cash in 75 days. The math doesn’t work.

Vendors give you 30-day terms because they expect you to take 30 days. You’re not doing them a favor by paying early – you’re just giving away your working capital.

Use your full payment terms. That alone usually improves cash flow by $5,000-$10,000 for most businesses.

Mistake #5: no cushion for the obvious stuff

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Every business has predictable slow periods. Every business has quarterly tax payments. Every business has equipment that eventually breaks.

But somehow, these things always come as a surprise.

Michigan businesses especially struggle with this. Construction companies not preparing for winter. Tourist businesses not saving for off-season. Manufacturers not planning for automotive shutdowns.

This is where small business cash flow problems really multiply. When you don’t plan for predictable expenses, every normal business cycle becomes a crisis.

This is like being surprised that winter follows fall. In Michigan, of all places, you’d think people would understand seasonal planning.

But it’s not just seasonal businesses. Every business has predictable cash needs. The smart ones plan for them. The rest operate in constant crisis mode.

Mistake #6: credit cards as cash flow

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I cannot tell you how many times I’ve heard this: “We use our business credit card to smooth out cash flow.”

No, you don’t. You use credit cards to cover up cash flow problems. There’s a difference.

Credit cards cost 20-25% interest. If you’re regularly using them for operating expenses, you don’t have cash flow management – you have a cash flow crisis that gets a little worse every month.

I’ve seen service companies paying $3,200 a month in credit card interest. Thirty-eight thousand dollars a year just in interest payments. That’s not smoothing cash flow – that’s bleeding to death slowly.

Get a line of credit before you need it. Use it for true cash flow gaps, not operating shortfalls. Lines of credit cost 8-12% versus 20-25% for cards.

Mistake #7: no idea what the real cash position is

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Owners constantly overestimate their available cash because they look at bank balances but forget about outstanding checks, automatic payments, credit card charges that haven’t hit yet.

They think they have money they don’t actually have. Then they write checks based on the bank balance, not the real available balance. Bounced checks, overdraft fees, angry vendors. Completely avoidable.

You need to know your true available cash every single day. Not your bank balance – your available cash after all outstanding commitments.

What this really costs you

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These aren’t just accounting issues. Poor business cash flow management costs real money:

  • Business owners paying $800+ monthly in credit card interest during slow seasons
  • Companies giving customers $50,000+ in free loans while paying interest on their own credit lines
  • Missing early payment discounts from vendors because cash is never available
  • Overdraft fees and bounced check charges that add up to thousands annually

Add it up, and poor cash flow management easily costs small businesses $15,000-$30,000 annually. That’s real money. Money that could go toward equipment, marketing, or just taking home a decent salary.

The good news

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Here’s what I’ve learned after 40 years: these problems are fixable. Not easy, but fixable.

It’s not magic. It’s just paying attention to the right things.

Most owners get into business because they’re good at something – manufacturing, construction, restaurants, whatever. Nobody ever taught them business cash flow management. It’s a learnable skill, but you have to learn it.

Where to start

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If you’re reading this thinking “Oh crap, that sounds like my business,” don’t panic. Improving your business cash flow management starts simple:

Get clear on where you really stand.

Most owners think they’re worse off than they actually are. Know your real cash position – not just bank balances, but what’s actually available after outstanding commitments.

Look at your collections.

I’ll bet you have more money sitting in aged receivables than you think. I routinely find $10,000-$20,000 in overdue invoices that owners have essentially written off.

Stop paying bills early.

Use your full payment terms. This alone usually improves cash flow immediately.

Build a simple forecast.

Nothing fancy – just income and expenses for the next 13 weeks. Update it every week. This prevents 90% of cash flow surprises.

Need Help?

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Look, if you’re struggling with business cash flow management, you’re not alone. And you’re not stupid. You just never learned this stuff.

I’ve put together a simple assessment that helps business owners figure out exactly where their cash flow problems are hiding. Takes about 5 minutes, gives you a clear picture of what needs fixing first.

If you want to talk through your specific business cash flow management situation, I’m happy to do a free consultation. No sales pitch – just an honest conversation about what’s working and what isn’t. I’ve been doing this long enough that I can usually spot the problem pretty quickly.

But don’t wait too long. Cash flow problems compound. That small issue today becomes a crisis next month.

The call is free, and everything we discuss stays confidential. After 40 years of helping businesses through this stuff, I’ve pretty much seen it all.

(248) 957-0300 – I answer my own phone.

Or if you want to get a handle on where you stand first, [take the cash flow assessment]. Either way, the important thing is to do something. These problems don’t fix themselves.

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