Quick summary
If you're getting customers but still running out of cash, this guide walks you through the most common causes and fixes. Follow the steps, use the checklists, and apply the simple decision rules to find where money is leaking or getting stuck.
How to use this guide
Work from the top sections to the bottom. Spend an hour per major section this week. Use the checklists and the decision rules to pick one or two fixes to implement immediately.
Step 1 — Confirm the problem (don’t guess)
What to check now:
- Open your bank statement and profit & loss (P&L) for the last 3 months.
- Compare total sales on P&L to cash deposits in your bank account for the same months.
- Ask: are deposits consistently less than sales? By how much?
Decision rule: If deposits are less than sales by more than 10%, you have a cash conversion issue. If deposits roughly match sales but the balance is negative, you have a profit or expense problem.
Step 2 — Common causes and how to test them
Cause A: Slow or missing customer payments (accounts receivable)
How to test:
- List invoices outstanding over 30, 60, 90 days.
- Calculate percentage of receivables older than 30 days: (Aged >30 days ÷ Total AR) × 100.
Decision rule: If >30% of AR is over 30 days, prioritize collections.
Quick fixes:
- Call the top 5 overdue customers and set a payment date today.
- Offer a small discount (1–3%) for immediate payment only if it clears the bank in 3 days.
- Require partial deposits for new work (example: 30% upfront, 40% at midway, 30% on completion).
Cause B: High costs or runaway expenses
How to test:
- List expenses by type and sort by amount for last 90 days.
- Look for one-time spikes or recurring increases (e.g., overtime, supplies, contractors).
Decision rule: If a single category is >20% of revenue and not tied to growth, cut or renegotiate it.
Quick fixes:
- Cancel unused subscriptions. Example: server hosting you don’t use that costs $200/month.
- Negotiate supplier discounts or longer payment terms.
- Temporarily freeze hiring and non-essential overtime.
Cause C: Low prices or unprofitable jobs
How to test:
- Pick the 10 most recent jobs. Calculate gross margin per job: (Price − Direct Costs) ÷ Price.
- Average the margins. If average gross margin < 30% for product businesses or < 50% for service businesses, pricing is likely too low.
Decision rule: If more than half the jobs are below target margin, raise prices or stop offering loss-making services.
Quick fixes:
- Increase prices by a small, tested amount (5–15%) on new quotes.
- Add surcharges for rush jobs or small orders.
- Introduce a minimum invoice amount (example: $75 minimum for home visits).
Cause D: Inventory tied up cash (retail or product businesses)
How to test:
- Calculate inventory turnover: Cost of Goods Sold ÷ Average Inventory. Lower turnover = cash stuck.
- Look for obsolete or slow-moving items that haven’t sold in 6 months.
Decision rule: If turnover is less than 3 times per year, reduce inventory.
Quick fixes:
- Run a clearance sale or bundle slow items with fast sellers.
- Switch to just-in-time ordering for slow SKUs.
- Return or renegotiate terms with suppliers if possible.
Cause E: Poor bank or financing management
How to test:
- List bank fees, interest, and loan payments. Are fees avoidable? Are interest rates high?
- Do you have a line of credit you can use in a short-term crunch?
Decision rule: If bank fees or interest are a predictable monthly drain, and cash is tight, find cheaper banking or refinance.
Quick fixes:
- Call your bank to reduce or waive fees; move to a small local bank or credit union.
- Apply for a small short-term line of credit only if you have a repayment plan tied to quick fixes above.
Step 3 — Short-term actions to stop the bleeding (next 7 days)
- Collect cash: call overdue customers; offer immediate-pay discounts sparingly.
- Pause discretionary spend: no new subscriptions, hiring, or equipment purchases.
- Sell slow inventory or offer service coupons that require prepayment.
- Speak to vendors: ask for 30–60 day terms or temporary grace periods.
Step 4 — Medium-term fixes (30–90 days)
- Set payment terms: move new customers to net-15 or require deposits.
- Implement simple invoicing habits: invoice same day, follow up at 7, 14, 30 days.
- Raise prices in a structured way: test a 5–10% increase on new customers first.
- Set monthly cash targets tied to bank balance, not just revenue.
Step 5 — Prevent it from happening again
Actions to make permanent:
- Cash flow forecast: simple weekly sheet showing expected cash in and out for 13 weeks.
- Monthly review: reconcile bank, P&L, AR aging, and inventory report once a month.
- Policies: require deposits, set minimum margins by service type, and require manager sign-off for expenses over a threshold (example: $500).
Simple templates and checklists
7-day cash triage checklist
- Call top 10 overdue customers — set payment date.
- Pause all non-essential spending.
- List top 5 expenses and review each with vendor.
- Identify and price for sale 3 slow items.
- Check bank for fee reductions and available short-term credit.
Invoice follow-up script (phone or email)
- Polite opener: “Hi [Name], this is [You] from [Business]. I’m calling about invoice #[#].”
- State status: “It shows unpaid since [date]. Can you confirm payment date?”
- If no date: offer options—pay now by card, send check today, or set a payment date within 7 days.
Example scenarios
Scenario 1 — Busy bakery, empty bank
Problem: Lots of walk-in sales, but bank runs low mid-month.
Diagnosis: Owner pays suppliers weekly and pays owner salary at month-end. No price check. Inventory waste high.
Fixes applied: Require daily cash drops to bank, reduce supplier payment cadence to biweekly, increase some product prices by 10% and introduce prepaid catering deposits (30%). Result: Bank balance stabilizes in 6 weeks.
Scenario 2 — Landscaping business with delayed payments
Problem: Jobs booked, but customers pay 60–90 days.
Diagnosis: No deposits, Net-60 terms, crew paid weekly.
Fixes applied: Start 30% deposit, issue invoices on completion with Net-15, offer 2% discount for payment within 7 days. Also secured a small line of credit for 3 months. Result: Cash flow improved and line paid off.
When to get outside help
Hire a bookkeeper if you don’t reconcile monthly. Consult a CPA if taxes or complex accounting cause cash surprises. Consider a cash-flow consultant or small-business lender if you need restructuring or bridge capital.
Final decision rules cheat sheet
- Deposits < Sales by >10% → fix collections and payment terms.
- Bank balance negative but deposits ≈ sales → cut costs and check profit margins.
- AR >30% older than 30 days → aggressive collections now.
- Inventory turnover <3/year → reduce inventory, run sales.
- Recurring fees >5% revenue → negotiate or cancel.
Next steps (do this today)
- Run AR aging and call the top 5 overdue accounts.
- Pause one recurring expense you rarely use.
- Set a simple weekly cash forecast for the next 4 weeks.
Follow these steps and re-check your bank balance in one week. Small, consistent actions usually fix the gap between busy and broke.