Small Business Cash Flow Problems: How to Fix Them and Build a Stronger Business

If you’re a small business owner in New Zealand right now and things feel tight, you’re not alone. We’re seeing it every day. Businesses are busy, work is coming in, but the bank balance still feels… awkward. Like it’s avoiding eye contact with you.

One of the biggest things I wish more people understood is this: profit and cash are not the same thing. You can show a profit on paper and still have no cash in the bank. It’s one of the most common “but we’re doing well?” moments I see. That’s usually where small business cash flow problems start.

Let’s talk about why it happens and more importantly, how to fix cashflow problems properly so you can build something stronger long term.

Why Do So Many Small Businesses Have Cash Flow Problems?

When a client calls me worried about money, the first thing I ask is simple: how are your accounts receivable looking? In plain English, how many unpaid invoices are sitting there?

Unpaid invoices are one of the biggest causes of small business cash flow problems. You’ve done the work, you’ve sent the invoice, but the money hasn’t landed. Meanwhile, bills are due, wages need to be paid and the IRD still wants their cut. They never forget.

Other common issues I see are:

• Too much money being drawn out of the business

• IRD debt building up

• Loan repayments not properly planned for

• Bills not entered into Xero so no one has a clear picture

• A bit of head in the sand because looking at the numbers feels overwhelming

Often business owners think the problem is that they need more sales. Sometimes that’s true. But just as often, it’s a process problem, not a sales problem. More work does not automatically fix messy systems.

How Do I Fix Cashflow Problems in My Business?

There isn’t one magic switch. I wish there was. It’s usually a combination of tightening a few key areas. The good news is most of them are completely fixable.

Get Control of Your Accounts Receivable

If you want to improve cashflow in a small business, start with your accounts receivable.

The biggest mistake I see is not having proper debtor management in place. No clear Terms of Trade, no documented credit management process and no consistent follow-up system.

It also feels like a Kiwi thing. We don’t love asking for money. We’d rather reorganise the filing cabinet than make that follow-up call. We worry about upsetting customers or getting a bad review. So invoices sit there.

You should always be nice. But you also need a process.

A few practical fixes:

• Make sure you have the correct Terms of Trade for your business

• Document a simple credit management policy so you know exactly when reminders go out

• Set up automated reminders that escalate in tone over time

• Do a phone call early if something is overdue to check there isn’t a genuine issue

• Make it easy to get paid with multiple payment options

Good debtor management is not about being aggressive. It’s about being clear, consistent and professional. When it’s done well, cashflow improves quickly. And it feels a lot less personal when it’s just “the system” doing its job.

Stop Guessing and Start Cash Flow Forecasting

Cash flow forecasting sounds scarier than it actually is.

One reason so many small business owners do not have a forecast is education. They have never been shown why it matters. Sometimes it’s also not wanting to see what the numbers might say. If you don’t look, you don’t have to deal with it, right?

But when someone creates a cash flow forecast for the first time, the reaction is usually the same. Clarity.

You can see what’s coming. You can plan for it. No surprises sneaking up on you at the end of the month.

The biggest mistakes I see in cash flow forecasting are forgetting loan repayments, not including regular drawings, ignoring upcoming tax payments and leaving out irregular expenses. Tax is usually the one that bites.

You cannot plan for what you cannot see.

What Does a Simple Cash Flow Forecast Actually Look Like?

Cash flow forecasting does not need to be complicated.

At its simplest, you are asking three questions:

1. How much cash is coming in each month?

2. How much cash is going out each month?

3. What will my bank balance look like at the end?

Start with your opening bank balance.

Then estimate your expected income for the next three to six months. Be realistic. Use past performance and current leads as a guide. Look at confirmed jobs, recurring revenue and historical patterns. Hope is not a strategy here.

Next, list everything going out. And I mean everything:

• Variable Costs: Raw materials, stock, packaging, shipping, commissions.

• Fixed Costs: Rent, staff wages, insurance, software subscriptions, loan repayments, utility bills.

• Don't forget less frequent costs like tax payments, equipment maintenance or professional fees.

Then it is simple maths:

Opening balance plus money in minus money out equals closing balance.

That closing balance becomes next month’s opening balance.

When you see it laid out like this, the emotion drops away and the drama settles down.

That is where clarity turns into control.

If this still feels overwhelming, reach out for guidance. An experienced advisor can walk you through it step by step. You do not have to figure it out alone.

Are You Taking Too Much Out of the Business?

This one surprises people.

When we properly review numbers, business owners are often shocked at how much they have taken out in drawings over the year. It’s the “wait… I took that much?” moment.

Again, profit and cash are not the same thing. You might show a profit but if most of the cash has already been taken out, there may not be enough left to cover tax, suppliers or loan repayments.

Taking an interest in your numbers does not mean becoming an accountant. It just means understanding what your business can realistically afford to pay you. And making sure future-you isn’t left cleaning up the mess.

Could Your Pricing Be Causing Your Cashflow Problems?

This is the uncomfortable conversation.

Lately, I am seeing a lot of businesses that are busy but not actually making money, especially in trades and businesses that carry stock or high labour costs. Flat out does not always mean financially healthy.

One of the biggest reasons is underpricing.

Often it comes from fear. If I charge more, will I lose customers?

But your pricing needs to cover more than just the obvious costs.

At a minimum, it needs to cover:

• The direct cost of delivering your product or service

• Your overheads like rent, software and admin

• A profit margin that allows you to reinvest and pay yourself properly

If your price only covers the first part, you are working hard for very little return. And working hard for very little return gets old quickly.

Jo’s Simple Pricing Formula: Cost to Deliver + Overheads + Desired Profit = Your Price

Top Tip: Regularly review your pricing, especially when your input costs (materials, software, shipping) increase. Your clients will understand that prices need to adjust to maintain quality.

Even a small price increase, done properly and communicated clearly, can significantly improve cashflow. I have seen it make the difference between constant stress and steady breathing room.

Pricing is not just about profit. It directly affects your ability to pay IRD, suppliers and yourself without scrambling.

How Can I Improve Cashflow in a Small Business Long-Term?

Fixing small business cash flow problems is one thing. Preventing them is another.

Over time, I see clear patterns between financially stable businesses and struggling ones.

Strong, stable businesses tend to pay their IRD on time or have an arrangement in place.

They have clear processes for creditors and debtors. They enter every bill into their accounting system. They take an interest in their numbers and plan ahead using cash flow forecasting.

They also make a habit of putting money aside regularly for tax and building a buffer for unexpected expenses. Whether it’s GST, income tax or just a quiet month, they plan for it instead of hoping it won’t happen.

That emergency buffer does not need to be huge. But having even a small amount set aside for tax and surprises can be the difference between a manageable setback and full panic mode.They are not perfect. They just stay engaged.

Struggling businesses often have poor or no processes for debtor management, let IRD debt build up, avoid looking at the numbers and blame external factors.

When cash is tight, prioritising payments becomes critical. IRD needs to be paid or under an arrangement because the interest and penalties are high. Your team must always be paid on time. If certain suppliers charge late payment penalties, those need to be considered carefully too.

Beyond penalties, paying suppliers consistently builds trust. Good relationships can lead to better terms and flexibility when you genuinely need support.

Cashflow management is not just internal. It affects how your business is seen externally as well.

If you fixed just one thing this year, I would say this: take more of an interest in what your numbers are telling you and then put a plan in place.

What Should I Fix This Week?

If you are reading this thinking yes, this sounds familiar, start small.

This week you could:

• Document a simple credit management process

• Review or update your Terms of Trade

• Check your accounts receivable and follow up anything overdue

• Make sure all bills are entered into Xero

• Start a basic cash flow forecast for the next three months

Small steps, done consistently, make a big difference.

This Is Not Just About Surviving

Fixing small business cash flow problems is not just about getting through the next month.

It is about building a business that can plan ahead, invest in growth, handle slower seasons without panic, pay its obligations confidently and give you the lifestyle you went into business for.

Strong cashflow management gives you options.

When you understand your numbers, forecast properly, price confidently and run solid debtor management processes, you are not constantly reacting. You are making decisions from a position of clarity.

That is the difference between running your business and your business running you.

Small business cash flow problems are common. They are also preventable. With the right systems, habits and support, you can move from stress and uncertainty to steady, sustainable growth.

And steady, sustainable growth feels a whole lot better.

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About the Author

Jo Jury is a Certified Bookkeeper (ICNZB) and Debtor & Payroll Specialist at My Two Cents Accounting & Advisory. She’s also a Xero Certified Advisor and Paidnice Specialist, supporting small businesses with practical systems to get paid faster and keep cash flow steady. Jo combines expertise with genuine care, helping clients stay on top of payroll and debtor management while keeping their finances running smoothly.