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The Top Cash Flow Mistakes for Small Business Owners

Written by Live Oak Bank

top cash flow mistakes for small businesses

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In our 2023 Voice of the Customer Survey, powered by Barlow Research, 28% of Live Oak customers indicated that managing their cash flow was a top concern in 2023. Understanding cash flow is critical for the success of your small business. In essence, the cash flow definition refers to the inflow and outflow of funds for your small business. This information is captured in a financial document called the cash flow statement. Without healthy cash flow, even thriving businesses can face financial difficulties. In this article, we've outlined some top cash flow mistakes and actionable tips to help you achieve financial stability for your small business.


Poor budgeting or forecasting

A lack of budgeting and forecasting can lead to unexpected costs and cause unrealistic expectations. Consider how you spend your money and whether you can find a way to reduce business expenses and find more efficient ways to operate. With proper budgeting, you can estimate costs and income and avoid overspending.   

Live Oak Tip: An important part of budgeting is separating your personal and business savings.



Overspending isn't just about exceeding your income; it's jeopardizing your financial security by draining your resources and leaving you with nothing to save for future goals and needs. Small business owners should always have a cash reserve for emergencies, such as equipment failure, inventory shortages, or a slow sales period. If you need more cash on hand for an emergency fund, this can be a sign that your business is mismanaging or lacking adequate cash flow. Negotiating with vendors for better deals and more favorable payment terms is a great way to help prevent overspending and help keep more cash on hand.


Lack of access to credit

Having a line of credit for emergencies is often vital for small business owners. When cash flow is constricted and funds are short, small business owners often rely on lines of credit and credit cards. While these options can provide a temporary safety net, they come with interest charges and repayment obligations that your cash flow will need to cover. Falling behind on payments can affect your credit score and negatively impact your access to capital in the future. If you have a poor financial history and consistently miss payments, a lender may be less likely to give you a line of credit when needed. Without access to credit, you could be left vulnerable when unexpected expenses arise. Establishing and maintaining good business credit is essential when running a small business.


Inconsistent pricing

Underpricing your products and services can negatively affect your cash flow. There are several things you can do to set profitable pricing structures. Research your competitors' pricing. Focus on what makes your product unique; it's essential to have a clear understanding of your value proposition. Consider value-based or premium pricing if you have a product that stands out from your competitors. If your product is similar to your competitors, then competitive pricing may be the best strategy for your business.


Uncollected or delayed invoicing

Ensure you send invoices to your customers on time and remind them if payments are late. It's important to include clear payment terms on your invoice to inform customers of the due date. If your customers consistently send you late payments, have conversations with them so they know the importance of paying you on time.  

Don't let cash flow be the Achilles' heel of your small business. By staying informed and taking these proactive steps, you can gain control of your finances and build a thriving business. At Live Oak Bank, we are committed to empowering and educating small business owners. For more information on cash flow management, check out our article, Ten Ways to Improve Small Business Cash Flow.

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