Cash flow challenges facing small businesses and what to do about it

How to tackle the small business cash flow crunch

The small business cash flow crunch, often a common and persistent challenge, occurs when a condition of negative cash flow is substantial enough to impact operational functionality. This can either be for a short or sustained period of time.

As accountants for small businesses, our ongoing goal is to assist our clients in maintaining a positive cash flow and avoid the dreaded cash flow crunch.

Read on to understand some of the key challenges for businesses, and tips to improve your cash flow!


Small business cash flow crunch challenges

Cash flow management is a common and persistent challenge for small businesses but is essential for a successful and complying business.

In a recent investigation conducted by Xero, some key findings on small business and cash flow were:

  • 92% of small businesses in Australia have experienced at least one month of negative cash flow in the last financial year.
  • One in five small businesses experienced more than six months of negative cash flow in the year.


Cash flow problems generally don’t appear out of the blue. Common signs that small businesses are heading for concern are:

  • Late payments
  • Rising expenses
  • Seasonal slowdowns


All of these red flags can contribute to small business stress and uncertainty.


Tips to improve cash flow using Xero

Accountants play a critical role in helping small businesses manage cash flow through tools, applications, and advice.

We recommend the following tips to assist your small business with cash flow management:


  1. Quotes – use the quoting function in Xero to quote for jobs and services. Quotes are very easy to turn into invoices.
  2. Invoicing – make the switch to new invoicing in Xero, where you will find new features and added value allowing you to invoice quicker. Review your payment terms on invoicing.
  3. Online payment services – link online payment services such as Stripe and GoCardless to Xero which can automate cash inflows. Allow clients to pay you easier with the ‘pay now’ function.
  4. Data capturing software – using software such as Hubdoc or Dext will capture receipts in Xero more efficiently, showing how much is due and when.
  5. Xero Analytics and Analytics Plus – use the analytics reports in Xero to view a projection of your bank balances in the future and see your GST and PAYG figures due from the BASs.
  6. Turn on invoice reminders – customise the reminders to automatically be sent to your clients for invoices due and overdue.
  7. Budget – use Xero’s budget manager to allow you to predict cash flow and anticipate crunches so you can better plan for the difficult periods. Review the budget against your actuals throughout the year.


Businesses are still recovering from the challenges brought on by the pandemic which continues to affect current cash flows.

Small businesses will need to be more organised and forward-thinking than ever to navigate an uncertain future and avoid the cash flow crunch.

If your small business is ready to tackle the cash flow crunch, get in touch with our team.  We’ll help you get on top of your finances and use Xero to your advantage to ensure business success all year round.

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