The Biggest Cash Flow Mistakes SMEs Make (and How to Fix Them)
Cash flow is the lifeblood of any business, but for many small businesses, it’s one of the hardest things to get right. You can be profitable on paper and still run into serious financial trouble if money isn’t flowing in and out at the right time. The good news? Most cash flow issues are completely avoidable with the right systems and habits in place.
Let’s take a look at the biggest cash flow mistakes we see, and how to fix them before they cause real stress.
Why This Matters
When cash flow goes wrong, it doesn’t just cause short-term stress, it can hold back your growth, damage your relationships with suppliers, and even put your business at risk. By addressing these common pitfalls, you can free up headspace, build financial confidence, and focus on growing your business with clarity.
At Love Accountancy, we help SMEs take control of their cash with smart tools like our Cash Management System and Xero integrations, so money flows in the right direction, with no nasty surprises.
The 5 Most Common Cash Flow Mistakes (and Simple Fixes)
1. Not Putting Aside Money for Tax
One of the biggest causes of panic? Realising your corporation tax or VAT bill is due and the money isn’t there.
Fix:
Use a simple system to set aside a percentage of income for tax each time you get paid. We recommend setting up a separate “Tax Pot” bank account so it’s out of sight, out of mind (until you need it). Our Cash Management System manages this, making it effortless to stay ahead of every bill.
2. Overlooking Payroll Planning
Wages, pensions, bonuses, it all adds up. Missing payroll isn’t just a cash flow issue; it hits staff morale hard.
Fix:
Forecast payroll well in advance, not just monthly but quarterly. If you have seasonal fluctuations, plan for quieter months by smoothing out salary commitments or adjusting your pay cycles. Use software like Xero to schedule, track and plan payments. Love Accountancy can also manage the payroll for you.
3. Confusing Profit with Cash
Just because your profit and loss report shows a gain doesn’t mean you have money in the bank. If your customers haven’t paid you yet, your “profit” is just numbers on a page.
Fix:
Use cash flow forecasting tools to map out what’s coming in and going out. Xero’s built-in cash flow view, or our CMS approach, gives real-time insight into what’s actually available to spend today, not just in theory.
4. No System for Managing Cash
Trying to make financial decisions without a plan is like flying blind. Too often, we see SMEs reacting to cash shortages instead of proactively managing them.
Fix:
Adopt a clear, simple cash management system. At Love Accountancy, we help businesses assign every pound a role, whether it’s for payroll, suppliers, VAT or owner pay. This makes decision-making easier and helps avoid overspending. If you’ve not read it yet, we recommend reading “Profit First” by Mike Michalowicz.
5. Letting Late Payments Slide
Waiting too long to chase unpaid invoices can quietly ruin your cash position. It’s not about being pushy, it’s about being consistent.
Fix:
Set clear payment terms, automate reminders, and follow up quickly. Better yet, use software that flags late payments and lets you send nudges without lifting a finger. Xero’s invoice tracking makes this easy and we can help you set it up properly.
Expert Tips & Common Pitfalls
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Tip: Use multiple bank accounts to separate funds: one for operating expenses, one for tax, one for savings. This gives clarity and control. Or better yet use a bank like Monzo or Starling, where you can set up saving pots all within one bank account.
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Tip: Review your cash flow weekly, not monthly. It doesn’t have to take long, just 10 minutes with the right dashboard or system.
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Common Pitfall: Relying on personal credit cards or loans to plug gaps. It might help short term, but it’s not a sustainable solution.
Call to Action
Worried about your cash flow? Let’s take the stress out of it. Our Cash Management System gives you a clear plan for every penny, so you always know what’s available, what’s safe to spend, and what needs setting aside.
Book a quick call with the team at Love Accountancy today, and let’s get your cash flow working for you, not against you.
https://www.loveaccountancy.co.uk/contact/
About Love Accountancy
At Love Accountancy, we believe great cash flow is the foundation of business success. Based in Exeter, we provide expert, technology-driven accounting services to small and medium-sized businesses across Devon and beyond. Whether you need support managing your cash flow, setting up a Cash Management System, or getting the most from Xero’s real-time insights, we are here to make your finances simpler, smarter, and stress-free – so you can focus on growing your business. Love Accountancy | Accountants that care