Mastering Cash Flow Problems: The Ultimate Guide for UK Small Businesses 

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Cash Flow Problems In A Business- An Introduction 

From my experience as a chartered certified accountant, I will share comprehensive information about cash flow problems in this guide.

It helps you in the decision-making process to control cash flow to avoid business failure.

First, I will share with you the cash flow issues UK businesses face.

Then, I will share with you how to recognize the risk and strategies to overcome the situation.

Sounds good?

Why would you trust me as a guide on this?

I have been a cash flow specialist for the last two decades. I have helped hundreds of clients to find the root cause of their cash problems. I also help them find a path to consistent positive cash flow.. I have been featured on the topic of cash flow in major sites like QuickBooks Online, Independent, Zoho, and Floatapp. 

I do this all day, every day, for a living and serve my clients through my company Hungry Cash Flow Ltd.

So, don’t worry. You are in safe hands.

Key Takeaways

  • Takeaway #1: Cash flow problems are common and dangerous. Small businesses need to be proactive in managing their cash flow to avoid serious consequences.
  • Takeaway #2: Find the root cause. Don’t just treat the symptoms of cash flow problems. Identify the underlying reasons for the issues to implement effective solutions.
  • Takeaway #3: Take a strategic and tactical approach. Set clear cash flow goals and use tools like forecasting and reserve-building to achieve the desired outcome for your business.

Let’s dive in.

Examples of businesses with cash flow problems

I have seen this working with my clients. Whether you sell a product or provide a service, cash flow problems can affect businesses of all sizes and types.

I will share three cash problems with you. They are from three different industries. I learned about them from my experience working with these industries over the years.

A Fast Growing Retailer selling luxury bags

One of my clients is a retailer based in Knightsbridge, London, selling luxury bags. I can’t name them for confidential reasons.

When I reviewed their income statement, sales revenue was booming and growing by 23% compared to the same period last year. As a result, net income increased by 11.38%, which is good.

But the problem was a lack of working capital. 

Going deeper into the balance sheet, it showed the overstocking of inventory. The stock value has increased by 43% compared to the same period.

This extra increment in overstocking in inventories had a strain on cash flow.

This is a classic case of “cash pays the bills, not profit.”

The Marketing Agency Mishaps

I have been working with this marketing company based in Southampton for over a year. When I first met the client, I looked at their cash flow statements. Their main source of cash was projected-based work. There was hardly any significant retainer fees income.

As a result, cash flow was always a rollercoaster ride. The business owner, she always had to juggle to pay the bills.

Also, when I reviewed the bank account reconciliation, I found the bookkeeping was not done well. As a result, it was difficult to ascertain assets and liabilities. So there was no cash flow clarity what exactly was the root cause of cash flow problem.

Hole in a dental practice finances

One of my clients is a dental practice based in Reading, doing £650k in patient income. I can’t name them for confidential reasons.

The Dental practice owner was frustrated. He worked six long days in the clinic. But, the money left in the bank at the end didn’t justify his efforts. 

He was so frustrated.

When I reviewed their financial statements, I found they had many items bought on lease. They also had items on hire purchase agreements.

Looking deeper, they had so many direct debit payments going out from their bank account to pay these liabilities.

I suggested they review their line of credit with their respective banks and go for debt consolidation.

It resulted saving of £ 1,549 monthly cash outflows.

These are just the some of the examples of  common cash flow problems business owners face. Let’s understand the cash flow problems from a UK business owner’s perspective as a whole.

Cash Flow Problems In the UK Business Landscape

According to, 23 % of the UK  experienced cash flow problems in 2023. Such a high percentage of businesses facing cash flow problems is frightening. Therefore, it is crucial, more than ever, to review your cash position to avoid cash flow problems.

I remember conversing with one of my clients- Colin Scotland, a Marketing Coach based in Warrington, UK. He compared the managing cash in the business to a juggler at a circus. Having to juggle the cash to pay the bills constantly. Like a juggler dropping a ball, it can ruin the whole show. Poor cash flow management can make a business unable to meet its bills.

One question I get asked often is.

What are the reasons for cash flow problems?

What are the reasons for cash flow problems?

To understand this, let’s park your revenue, costs, and expenses to the side.

You have a cash flow problem when your cash outgoings exceed cash incomings. If the pattern continues for a few months, you have a severe cash flow problems.

Is it common?


You could have cash flow problems if you are not careful. This is true whether you run a business that operates year-round, or a seasonal business. For example, selling ice cream in the summer. And, selling Christmas merchandise at Christmastime.

The cash flow business means you get paid instantly at the point of sale, like a retail or dental business. But, it can also face cash flow problems.

Here’s the thing.

It’s not the industry or seasonality but the structure, systems, and processes related to cash flow that lead to problems.

The Real Cost of Cash Flow Problems:  A Harsh Reality for UK small business owners

If you are facing a cash shortage, let me tell you you are not the only one.

According to Xero, 23% of small businesses in the UK face severe cash flow problems. Severe cash flow issues cause stress for business owners. They have sleepless nights and constantly worry about paying their suppliers.

Types Of Cash Flow Problems

From what I have seen,  the problems with cash flow can be categorized into three types.

 1. Financial Instability

When a business consistently struggles with cash flow, this can hurt its ability to pay suppliers and creditors on time. It leads to damaged relationships and a bad reputation. This can result in higher costs as suppliers may demand higher prices or stricter payment terms. 

2. Business Growth Impeded

Lacking cash, businesses cannot invest in adding team members. They also cannot invest in sales and marketing.  It’s like you have a body, but you are handicapped.

I call them cash flow paralysed.

3. Financial Insolvency

Businesses may not meet long-term debts. This can result in going into administration. In the UK, the number of businesses going into administration has increased in 2024. So many household names like, just cash flow went into administration.

It reminds me of clients operating in the e-commerce sector selling clothes who filed for bankruptcy. 


A real-life example of how cash problems escalate leading to financial insolvency – A Case Study of one of my clients

Himalayan Goods Direct (I changed the name for confidentiality reasons) is an e-commerce site running from the UK, providing clothes made in Nepal to the UK and Europe markets. The business is run by Tim and Samjhana, who are a married couple when they met on a trekking tour in Nepal. Their business has been operating for nine years.

What were the cash flow problems?

I worked with them for sixteen months. Later, I found out their business had a severe cash shortage.  Business was unable to pay salaries and other creditors on time. This was because of a few things:

    • Less profit margin– This means less cash in the business

    • Sales to big stores dropped. This was because the payment terms were 60 days from the shipment date, not from the invoice date. So, they were tied up in accounts receivable.

To solve this, they cut their workforce from 6 to 4. They cut subscription billings. They spent less on marketing. They sought their accountant’s advice. They used invoice factoring to get cash.

 What were the effects of cash flow problems?

By reducing the workforce, they had less manpower. As a consequence, they were not able to ship the orders on time for deliveries. Their lack of good service hurt their customers. This drop in sales then hurt working capital.

What was the final outcome?

 A financially healthy cash flow business  ran into serious cash flow issues and became insolvent. They had to see an insolvency practitioner. The practitioner was an expert in settling debts and insolvency. 

It became one of the business casualties because of cash flow problems. 

I’m sure you want to avoid this situation if you are still here. So, what can you do to safeguard your business? 

Let’s look into this next.

How to recognize risk factors leading to cash flow problems?

To deal with potential cash flow problems issues, you need to be aware of risk factors.

I will break them down into three types. I call them 3 S’s.

    1. Structure- Your Business Model

    1. Sector- Industry you are in

    1. Seasonality

Identifying High-Risk Business Models- (Structure)

When it comes to business models, you need to be aware of two types. 

The first one is that the business receives the payment first and then pays the creditors later. For example, a luxury goods retailer gets the money first from its customer. Then, it uses that money to pay the creditor.

The second one is you buy products or services from the vendor and then receive the money from your customers later. For example, a marketing agency receives a bill from its vendor. But the marketing agency invoices its client later.

The timing of invoicing and of fund exchanges differs in these two business models. So, the needed cash reserve will differ too. 

From what I have seen, the second model is riskier than the first. This is because receiving payment from the customer is not in the business owner’s hands.

Identifying High-Risk  Industries (Sector)

Not all business models are created equal regarding cash flow risks. For instance, your cash flow can be as unpredictable as the British weather if you’re in retail or hospitality. 

And let’s not forget startups, where cash flow is more like a rollercoaster than a steady climb. The key is to know your risk level and plan accordingly. It’s like knowing when to bring an umbrella – because you never know when it might rain in the UK.

Navigating Seasonal Variations (Seasonality)

If you run a seasonal business, then your cash flow might feel like a feast in summer and a famine in winter.

 But it doesn’t have to be this way.

Planning for these variations is like storing nuts for the winter. You’ve got to build up your reserves when times are good so you can coast through when sales dip.

What causes cash flow problems in a business?

In this section, I am going to share the comprehensive causes of cash flow problems. It’s not just about spotting the symptoms; it’s about diagnosing the disease. Let’s dive deep into the causes of cash flow problems so that you can cut them off at the pass.

I talk about three things.

    1. Common Causes of Cash Flow Problems

    1. Uncommon causes of cash flow problems

    1. Psychological Impacts of Financial stress on small business owners

What are the Common Causes of Cash Flow Problems?

I have worked with small business owners in the UK as their accountant. Cash flow problems are very common.

The mistake I see often is when business owners try to solve the cash flow problem, they treat the symptom, not the cause.

It’s like me going to the doctor because I have tonsillitis, and the doctor only prescribed the paracetamol to bring down the fever. What he needs to provide a prescription is antibiotics.

In the same way, I came across a business with a very limited net profit margin. The business owner believed if he grew his sales, he would solve the cash flow problem. This is one of the common causes.

Another common cause is late payment. 

Did you know?

According to Barclays 3 in 5 business which accounts for 58% experience late payments.

In some cases, the situation is so bad because the business has to wait over 90 days to get paid, especially from the biggest brands. 

I have seen a a few household names not paying a small business owner for over 90 days. They are investing the cash they receive from customers by offering loans and credit cards.

To dig deeper, check out 10 common causes of cash flow problems.

What are the uncommon Causes Of Cash Flow Problems?

It is also important to go through the uncommon causes of cash flow problems so that you are fully aware of it from all possible angles.

You may misjudge marketing trends or the economy. These are mostly causes outside your control. Nevertheless, it causes an effect on your business operations and is related to cash flow problems. You can check out 4 uncommon causes of cash flow problems in more detail.

What Are The Psychological Impacts of Financial Stress on Business Owners?

From what I saw with my clients, the psychological impacts business owners go through are huge. 

I remember receiving an email from a client selling luxury goods in London. Saying, “Where’s my cash Shishir, it’s all gone”.

You can imagine the financial stress and anxiety he was going through at that moment.

In my experience, when the business has cash flow problems, it occupies the business owner’s mind. He or she is constantly thinking about cash flow worries. As a result, he cannot focus fully on the business. 

How can cash flow problems be solved?

From my experience of working with my clients, cash flow problems can be solved in two phases. 

First, you look at the current and forecasted cash flow issues strategically. This is true whether you are trying to grow or stabilize your business. 

Then, for each outcome, you want to solve cash flow problems from a technical and practical point of view. 

Let me explain.

What Are The Strategic ways to solve cash flow problems?

The first stage is to determine what you are trying to achieve. Is it?

1. Liquidity– to ensure short-term financial stability

2. Solvency– to ensure the existence of business while tackling long-term debts 

3. Growth – to generate excess cash for business scalability.

Scenario-Based Solutions for Liquidity and Solvency Issues

One thing that has worked great for my clients is looking at cash flow problems from scenerio-based solutions.

Here’s the thing.

Each scenario demands its own strategy. For liquidity, it might be about speeding up receivables. For solvency, it could be about debt consolidation and reviewing line of credit.

Whatever financial support you have must fit short-term and long-term business goals.

Imagine wearing red high-heeled shoes that look stunning but go for jugging. Or taking a brand new Ferrari to the Scottish highlands, where the roads are rough.

It doesn’t work as it’s not fit for purpose.

In the same way, you want to ensure liability are coincided with corresponding assets to cover for that.  In accounting terms, we call it the asset/debt ratio.

This is by far one of the single biggest cash flow mistakes I have come across business owners make leading to bankruptcy.

Detailed tactical ways to solve cash flow problems

Once you have chosen a scenario-based strategy for solving cash flow problems, it’s time to get tactical. You need to address company cash flow problems.

I have a detailed guide on solving cash flow problems.  It explains how to improve cash flow by using concepts like cash flow forecasting and building cash reserves. This is a a must if you are constantly concerned your business has insufficient cash. 

Interactive Causes of Cash Flow Problem Identifier Quiz

Look, you might be thinking, where do you go from here? 

If you would like, you can find out the specific causes of your cash flow problems with this interactive assessment. 

I have worked with hundreds of small business owners over the last two decades. Based on this experience, I have found the root causes of common cash flow problems. 

There are four of them.

When you go through the assessment in less than 60 seconds, I will find your cause of cash flow problems. I will also give you personalized steps to solve them.

You can take the assessment here.

Advanced Tools and Tailored Advice

There are cash flow-focused tools that are available in order to solve a company’s cash flow issues.

You can use a free cash flow calculator tool I have created to get started. With our cash flow calculation tool, you can calculate cash flow for analysis purposes to identify the root cause of the problem.

Try For Free

Advanced cash flow Software and  Systems for Cash Flow Optimization

Today’s digital age has tools that can streamline cash flow management. They cover everything. They track invoices and predict future cash needs. It’s like having a high-tech co-pilot for your financial journey.

Each tool has its strengths and weaknesses; some are better suited for the UK market. Choosing the right software is like picking the right equipment for a hike – it needs to suit your needs.

The most popular ones are 

    • Hungry Cash Flow

    • Agicap

    • CashAnalytics

    • Quickbooks Online

Expert Advice: When to Seek Professional Financial Services

Sometimes, you need to call in the cash flow experts for professional advice. Getting advice from a financial pro can mean the difference between guessing and knowing. It’s like asking a local for directions in a new city – they can often show you the best path.


In this comprehensive guide,  we looked at cash flow problems in detail. You have given yourself an excellent chance to fix the cash flow problems.

At some stage, every business goes through a cash flow rollercoaster and problems. It’s not a question of if you will have cash flow problems. It’s the question of when you will have cash flow problems. So, it is better to be self-aware of your cash flow situation and take action accordingly.

Remember, when you learn to respect cash. It will respect you back.

Checklist: Are You Equipped to Resolve Cash Flow Problems?

Do you have the tools, knowledge, and strategies to manage your cash flow effectively? Use this checklist as a quick reference guide to ensure you’re on the right track.

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Shishir Khadka transforms businesses to master cash flow and achieve financial freedom. His strategies have helped an e-commerce client that grew from £500k to £1.6m in just four years – a journey chronicled in his book “The Three Key Obstacles to Faster Growth: How You Can Overcome Them Using Cloud Accounting.” He also achieved 220% growth for a retail client reaching £53.8m annual revenues.

A chartered certified accountant (ACCA, 2007) with over two decades of experience, now turned cash flow specialist, Shishir also founded Hungry Cash Flow software and created Cashflowpedia,- the world’s most comprehensive cash flow resource online. He holds bachelor’s degrees in applied accounting from Oxford Brookes University (2005) and business studies from Roehampton University (2002).

Shishir is dedicated to helping ambitious entrepreneurs in retail, dental practices, and marketing agencies, sharing his proven strategies through Cashflowpedia, masterclasses like his Zoho presentation, and features in The Independent and Floatapp.