You can be profitable and still run short of cash. Business cash flow is the money moving in and out of your business, and tracking its timing is how you spot a shortfall early.
| Item | Value |
|---|---|
| Small businesses reporting cash flow issues in the prior 12 months (Xero, 2024) | 72% to 87% |
| Small business owners who can’t pay themselves regularly (Xero global survey) | 31% to 46% |
| Service-based companies confident in their cash flow (Q2 2025) | 57% |
| Professional services companies confident in their cash flow (Q2 2025) | 70% |
| Days for one manufacturer to turn stock into cash (Krieger Analytics case study) | 49 days |
| Debt service coverage ratio often cited as a minimum for SBA loans | 1.25 |
These figures come from a syndicated article published in July 2025 on ABC17. Survey results and ratios can change, so check the source before you rely on them.
What business cash flow actually means
According to a March 2022 guide from Resolve, cash flow is the movement of money into and out of your business, measured as the net amount that comes in or goes out during a specific period. It is a record of timing as much as of totals. Money you are owed does not count until it lands in your account.
The ABC17 article, published in July 2025, lists what moves through that flow: customer payments, bills, loan repayments and wages. Every one of those is a cash event, whether it is welcome or not.
Resolve describes two directions your cash flow can take:
- Positive cash flow means inflows exceed outflows. That gives a business room to meet operating costs, reinvest in growth or set money aside for later.
- Negative cash flow means more money is going out than coming in. Resolve says this can lead to financial strain and liquidity issues.
A negative month is not automatically a crisis. A business that buys stock ahead of a busy season, for example, may see cash fall before it rises. What matters is whether you saw it coming and can cover the gap.
Cash flow is not the same as profit
The ABC17 article puts the difference simply: profit is what is left after expenses, while cash flow is what actually moves in and out of your business. It adds that you can show a profit and still run out of money if clients pay late or expenses pile up unexpectedly.
That gap is the reason owners read both numbers side by side. Our explainer on cash flow vs profit walks through the difference in more depth.
Receivables and payables
Resolve names accounts payable and accounts receivable as key elements of cash flow. Accounts payable is what your business owes to creditors. Accounts receivable is money owed to you for goods or services you provided on credit.
In Resolve’s framing, receivables point to future inflows and payables point to upcoming outflows. If you want the basics of the first half of that pair, read what is accounts receivable.
Free cash flow
Resolve also defines free cash flow as the cash remaining after deducting operating expenses and capital expenditures. It says this figure shows how much cash is available to pay dividends, reinvest in the business or reduce debt.
Not every small business tracks this measure formally. Even so, it helps to separate the cash needed to keep the doors open from the cash that is genuinely spare.
Why do profitable businesses still run short of cash?
The ABC17 article was written by Gateway Commercial Finance, an invoice factoring company, and distributed by Stacker. Keep that commercial perspective in mind when you read it. Its central point still matches the Resolve guide: profit on paper does not pay wages or suppliers.
The article cites a Xero report that, in 2024, between 72% and 87% of small businesses worldwide had run into cash flow issues in the prior 12 months. It names missed payroll, late supplier payments and stalled growth as common results.
Six common cash flow killers
The article groups the usual causes into six cash flow killers:
- Late payments from customers, which choke working capital and stall growth.
- Seasonal slumps or erratic revenue, which make it hard to plan or pay bills consistently.
- Upfront supplier costs, which tie up cash before you have earned anything back.
- High overhead such as rent, payroll and utilities, which eats away at liquidity fast.
- Weak forecasting, which leads to overspending in good times and leaves nothing for leaner ones.
- Poor expense tracking, which makes it easy to overspend without realizing it.
The article’s view is that these problems are common but often predictable. Many owners, it says, miss the signs until they are already behind on payments.
Late payment is the one most owners recognise first. Our page on late payments small business owners deal with looks at how it plays out.
Industry stress points
The ABC17 article says some industries feel the squeeze more than others. In manufacturing, cash often gets stuck in inventory. In one case study, Krieger Analytics estimated that, on average, it took 49 days for a manufacturer to turn stock into cash.
Service businesses face a different problem: unpredictable demand. The article cites the U.S. Chamber of Commerce’s Q2 2025 Small Business Index, which found that 57% of service-based companies feel confident in their cash flow, compared with 70% in professional services.
These are single survey and case-study results, not universal rules. Your own sector, customers and season will shape your numbers.
The personal side of cash flow stress
Cash flow problems do not stay on the balance sheet. The ABC17 article cites a Xero global survey finding that between 31% and 46% of small business owners can’t pay themselves regularly.
The article says that kind of strain wears people down, delays growth and increases personal financial risk. For a one-person business, the owner’s pay is itself a cash outflow that competes with every other bill.
The three parts of a cash flow statement
The ABC17 article notes that businesses use cash flow statements to make sense of the flow. A typical statement splits cash into three activities, and each tells a different part of the story.
- Operating activities cover everyday transactions such as sales revenue and payments to suppliers.
- Investing activities track money spent on assets such as equipment or property.
- Financing activities include loans, owner investments and dividend payouts.
Read together, the article says, they show whether a business is surviving, thriving or about to hit a cash crunch. A business with strong operating cash but heavy loan repayments, for instance, looks very different from one propped up by new borrowing.
Resolve adds that the cash flow statement and the income statement are the reports that indicate a company’s financial health. If you have never worked through one, how to read a cash flow statement shows the steps.
Measures that show how healthy your cash flow is
Statements show what happened. A few ratios and measures help you judge how comfortable your position is and how fast cash is cycling through the business.
Cash conversion cycle
The ABC17 article says the cash conversion cycle tells you how quickly your business turns inventory or services into cash. A shorter cycle means better liquidity.
The 49-day manufacturing example above is one illustration of how long that cycle can run. Resolve also points to accounting software that can help optimize the cash conversion cycle and payable days.
Debt service coverage ratio
The same article describes the debt service coverage ratio (DSCR) as a measure lenders care about. A DSCR of 1.25 means you are generating $1.25 in cash flow for every $1 in loan payments, which the article says is often the minimum for Small Business Administration loans.
Lenders set their own standards, and requirements differ by provider, product and country. Treat the 1.25 figure as an example from one article, not a threshold you can count on.
Days sales outstanding and working capital
Two more measures come up often when owners talk about cash. The first is days sales outstanding, which tracks how long customers take to pay you. The second is working capital, which the ABC17 article links directly to late payments.
Resolve lists maintaining enough working capital to cover financial obligations and unexpected expenses as part of cash flow management. For a plain-language definition, see what is working capital.
Forecasting and everyday cash flow habits
The ABC17 article says forecasting gives you a forward view of your cash position, so you are not constantly reacting to surprises. It cites a four-step method recommended by PwC:
- Set your forecast timeline. Choose weekly, monthly or another interval that fits your business rhythm.
- List expected income. Include all cash inflows, such as sales, subscriptions and grants.
- Map out expenses. Capture regular costs like rent and payroll, plus any one-off outflows.
- Calculate net cash flow. Subtract expenses from income to see whether you are in the black or heading for a shortfall.
The method is deliberately simple. A short, regularly updated forecast usually tells you more than a detailed one you never revisit. Our guide to building a cash flow forecast goes through the process in more detail.
Habits the sources describe
Resolve’s March 2022 guide lists several practical habits for cash flow management. They are one publisher’s suggestions, and what suits one business may not suit another:
- Use software. Resolve says accounting software or apps can help optimize the cash conversion cycle and payable days.
- Send invoices early. Resolve notes that a $5,000 invoice means nothing to the business if you do not have that cash on hand. It suggests smaller businesses invoice when they complete a milestone.
- Manage inventory. Resolve says deadstock hurts cash flow because the money spent on it is not converting into revenue.
- Lease rather than buy. Resolve says leasing equipment can ease the short-term financial burden.
- Build a cash-aware culture. Resolve says everyone in the company should understand why cash management matters.
For a wider look at routines and tools, see cash flow management for small business.
Each of these has trade-offs. Leasing, for example, replaces one large outflow with a series of smaller ones, so it changes the shape of your cash flow rather than removing the cost.
Turning a forecast into a routine
A forecast is only useful if you compare it with what really happened. After each period, set the actual figures next to the forecast and note where they differed. Over time, those gaps show which customers pay slowly, which costs creep up and which sales you tend to overestimate.
The ABC17 article lists weak forecasting and poor expense tracking among its cash flow killers, and the two problems feed each other. Without good expense tracking, a forecast rests on guesses about outflows. Without a forecast, your records tell you what already happened but not what is coming.
Timing is the other lever. Because the PwC method asks you to list expected income and map out expenses, you can see which weeks have money going out before money comes in. That timing gap is where a profitable business can still run short, as the ABC17 article describes when clients pay late.
Questions worth asking each period
A short set of review questions keeps the exercise from becoming a chore. You might ask:
- Which invoices are still unpaid, and how long have they been waiting?
- Are regular costs such as rent and payroll covered by the inflows you expect?
- Is stock moving, or is cash sitting in inventory that is not converting into revenue?
- Are any one-off outflows, such as equipment, due before the next large payment arrives?
- Does anyone besides the owner or accountant understand where the cash is going?
These prompts echo points the sources make. Receivables signal future inflows, payables signal upcoming outflows, and slow-moving inventory ties up money. They are thinking aids for your own review, not a checklist issued by any regulator or provider.
Matching habits to your business
The ABC17 article’s industry examples show that pressures differ. A manufacturer watching stock may care most about the cash conversion cycle, while a service business with unpredictable demand may care most about having a cushion for slow months. Neither emphasis is universally right.
Small habits also add up. A short regular review takes little time compared with the stress of discovering a shortfall on payroll day. Whether weekly or monthly suits you depends on how quickly your cash position changes, which is the point of the PwC step about choosing a timeline.
It also helps to keep a brief note beside each forecast explaining what you expected and what happened. A line such as “expected a large customer payment; it arrived late” turns a spreadsheet into a learning tool. Anyone you later discuss the business with, whether an accountant, a colleague or a lender, can then follow the history and ask better questions.
None of this removes the uncertainty that comes with running a business. It simply gives you earlier warning, which is the main benefit the sources attribute to forecasting and tracking. Your own circumstances, and the terms offered by any provider you speak with, will always differ from the general examples here.
Where outside financing fits into the picture
Some owners look at outside financing when cash timing gets tight. Resolve says that borrowing before you need to, when your credit score is good, can mean a line of credit is easier to open. That is the guide’s opinion, not advice for your situation, and lending terms vary by provider and country.
Resolve also mentions that automated invoicing and AR financing options can help streamline receivables and reduce the risk of late payments. One example is invoice factoring, which our site explains in general terms.
Keep two cautions in mind. First, any financing carries costs and obligations that differ widely between providers. Second, several of the sources here are published by companies that sell finance or payment products, so read them as one perspective.
This site is independent and educational. It does not provide, arrange or broker funding, and nothing here is a recommendation. For the wider landscape, our overview of small business finance sets out the main options in neutral terms.
Frequently asked questions
What is business cash flow in simple terms?
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It is the movement of money into and out of your business over a specific period, according to Resolve’s March 2022 guide. Customer payments are inflows, while bills, loan repayments and wages are outflows.
Can a profitable business have cash flow problems?
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Yes. The ABC17 article, published in July 2025, says you can show a profit and still run out of money if clients pay late or expenses pile up unexpectedly. Profit is measured after expenses, while cash flow tracks when money actually moves.
What does a DSCR of 1.25 mean?
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The ABC17 article explains that it means you are generating $1.25 in cash flow for every $1 in loan payments. It says this is often the minimum for Small Business Administration loans, but lenders set their own rules.
How often should you forecast cash flow?
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The PwC method cited by ABC17 says to choose weekly, monthly or another interval that fits your business rhythm. The right interval depends on how quickly your cash position changes.
This page is for general information and education only and is not financial, investment, tax or legal advice.
