Cash flow in business isn’t just about keeping the lights on, it’s a key driver of growth, stability, and strategic planning. Healthy cash flow supports agile decision-making and creates space for businesses to invest confidently in their future.
However, sustaining positive cash flow can be particularly difficult for businesses in growth mode. According to our recent SME Index*, 37% of surveyed businesses identified high inflation as the top challenge over the next 12 months. Among them, over a quarter (26%) cited cash flow challenges as the main impact of this economic pressure.
Below, we break down the fundamentals of cash flow, common challenges faced by growing companies, and actionable cash flow management strategies to overcome them.
Cash flow refers to the net movement of money into and out of a business over a specific period. It can be either positive; more cash coming in than going out, or negative; where outflows exceed income.
Monitoring cash flow is vital to avoid shortfalls that can threaten day-to-day operations or long-term plans. Finance teams must stay on top of both expected income and upcoming expenses to prevent nasty surprises.
While profit is the amount left after costs are subtracted from revenue, cash flow reflects real-time liquidity; how much actual cash a business has to work with. A company can be profitable on paper but still experience negative cash flow if payments are delayed or poorly managed.
Understanding the types of cash flow can help businesses pinpoint where issues or opportunities may lie:
Positive vs negative cash flow
Positive means more money in than out; negative means the opposite.
Cash flow from operations (CFO)
This includes revenue and expenses tied to core business activities, such as sales, production, and services.
Cash flow from investing (CFI)
This tracks income from investments, including property, equipment, or securities.
Cash flow from financing (CFF)
This covers cash movements related to funding, such as loans, share issuance, or dividend payments.
Managing cash flow effectively is crucial to business health and scalability. It influences everything from paying staff and suppliers to expanding into new markets.
Poor cash flow management can hinder a company’s ability to grow. Without clear visibility or access to funds, a business might miss out on valuable opportunities, fall behind competitors, or struggle with day-to-day expenses.
Even with strong sales or profit forecasts, cash flow can be disrupted by several factors:
1. Fluctuating expenses
Volatile costs, especially in times of inflation, can increase outgoings suddenly and strain available cash.
2. Slim profit margins
Running on tight margins may be necessary for competitiveness, but it reduces the buffer against cash flow disruptions.
3. Costly assets vs income
High investment in assets that don’t quickly generate revenue can weigh heavily on cash flow.
4. Late payments
Delayed customer payments are a leading cause of cash flow issues, making it difficult to plan and pay your own bills on time.
Read more: https://www.aldermore.co.uk/insights/businesses/how-to-deal-with-late-payments/
5. Market shifts
Sudden changes in market dynamics or new competition can reduce demand, impacting revenue and cash inflows.
6. Overextension
While it can be tempting to take on more work than your business can comfortably manage, sometimes, there’s a tipping point. Taking on too much work without the capacity to deliver can lead to dissatisfied clients and delayed or withdrawn payments.
When facing negative cash flow, businesses need practical solutions to stay afloat and continue growing. Flexible financing options can help bridge the gap.
Use business finance to support strategic activities such as hiring, marketing, or expanding product lines, without sacrificing cash reserves or equity.
Funding can help meet ongoing expenses like wages, rent, energy bills, or supplier payments, keeping operations stable even when income is delayed.
Short-term cash injections can help businesses weather dips in income or unexpected disruptions, so they can stay focused on long-term goals.
At Aldermore, we provide adaptable business finance solutions tailored to your cash flow needs. Whether you're tackling short-term challenges or investing in long-term growth, we’re here to help you take the next step confidently. Discover our business finance services today.
*SME Index – Research conducted by Opinium on behalf of Aldermore between 2nd – 11th April 2025 of 1,000 SME Senior Decision Makers.