We have all heard the phrase “Cash is King”. But for many founders, its true meaning only hits home when the business is already in trouble.
By then, it may be too late.
The difference between survival and failure in business often comes down to how early you spot the warning signs. Cash flow issues do not usually appear overnight. They build slowly, hidden beneath the surface of strong sales or rapid growth.
In our webinar series we spoke with Matthew Young, a founder who experienced this first-hand. His business was growing fast and, on paper, looked like a roaring success.
But he didn’t know how to spot cash flow problems.
There was a moment when he realised something was amiss.
It was when he was looking at his creditors list, he realised the numbers were not moving. Money was flowing in, yet it was not clear where that money was going. It certainly wasn’t paying off his creditors. Overheads and wages ate into revenue, and suddenly the saying “Cash is King” stopped being a cliché for him, and became a brutal reality.
With the magic of hindsight, Matthew is able to look back and see when things began to unravel.
To help you avoid the same pain, here are the early warning signs every SME founder should watch for, and what to do if you see them.
1. Creditors are not shrinking even when revenue is rising
If your creditors list is not reducing even though sales are increasing, something is not right. This could point to poor cash management, creeping overheads, or hidden costs that are not being monitored.
- Check: Do you know exactly where each pound of income is going? If not, it is time to dig deeper.
2. Firefighting has become the norm
Lying awake at night worrying about wages, rent, or supplier payments will sound familiar to any entrepreneur and isn’t itself a sign of problems. At the same time, it can be an early sign of cash flow stress. Constantly juggling payments without a strategy is not sustainable. It is a red flag that your cash position is sliding into danger.
- Check: Are you moving money around to get through the week rather than following a cash flow plan?
3. Revenue is rising but profit margins are not.
High sales figures look good but can mask underlying weakness. If your outgoings such as overheads, stock, and wages are outpacing income, cash flow will tighten regardless of turnover.
- Check: Track gross margin and net profit alongside revenue. Use KPIs such as:
- Gross margin percentage
- Operating margin
- Net cash from operations
If these are shrinking while revenue climbs, take action.
4. Customers and suppliers raise concerns
Suppliers chasing payments harder than usual, or customers noticing late deliveries, are not isolated incidents. They are symptoms of pressure on working capital.
- Check: Review your debtor days, which measure the average time customers take to pay, and creditor days, which measure the average time you take to pay suppliers. A widening gap between the two is often the start of a crisis.
5. You are avoiding the numbers
Many founders put off looking at financial reports until they have to, after all, you didn’t set up a business just to look at spreadsheets. But procrastination is one of the biggest enemies of cash flow management.
- Check: Do you review a simple finance pack every month? At the very least, schedule regular check-ins with your accountant or Finance Director. A rolling 13-week cash flow forecast is a powerful tool for visibility.
6. Growth is outpacing control
Scaling too fast without the right finance infrastructure can be just as risky as not growing at all. If you do not have systems to manage stock, invoicing, or working capital, growth can consume cash faster than it generates it.
- Check: Do you have the right finance expertise in place? At this stage, many businesses benefit from a Finance Manager or a Fractional FD who can build proper cash visibility and controls.
7. Leading indicators are flashing red
While sleepless nights and creditor calls are obvious signs that your cash flow is struggling, some warning signs are more subtle:
- Inventory levels rising faster than sales
- Customers taking longer to pay, meaning debtor days are increasing
- Over reliance on one or two big clients
- Declining gross margin over several months
These are the canaries in the coal mine.
Now you know how to spot those cash flow problems early, you can act before the crunch hits.
What to do if you spot the signs
Recognising the warnings is only half the battle. Here is how to take action before a cash flow wobble becomes a crisis:
Conduct a cash flow audit
Track every pound coming in and going out. Where are the leaks? Plug them quickly.
Build a rolling forecast
A 13-week cash flow forecast is the gold standard. Even a simple spreadsheet gives you clarity and confidence.
Create a cash reserve
Aim for at least three to six months of operating expenses in reserve. This buffer can be the difference between survival and collapse.
Explore funding options
If you need breathing space, consider invoice financing, short-term overdrafts, or negotiating extended payment terms. Act early, because banks and investors prefer proactive conversations.
Get expert help
Cash flow problems are rarely solved in isolation. An experienced Finance Director or Fractional FD can help you see patterns, negotiate with stakeholders, and build lasting solutions.
Communicate with transparency
Do not go silent with suppliers or creditors. Honesty and proactive communication often buy you goodwill and time.
Final thoughts
Cash flow crises do not strike out of the blue. They build gradually, often hidden beneath positive revenue numbers. The founders who survive are the ones who trust their instincts, review their numbers regularly, and act early.
As Matthew reflects: “You go through the same pain whether your business goes bust for £250,000 or £5 million. The difference is in how early you spot the warning signs and what you do about them.”
So, are you really treating cash as king?
You now know how to spot cash flow problems but do you have the time?
If you would like help spotting the early signs, building a forecast, or creating resilience in your finance function, get in touch with us. Our Financial Health Check is designed exactly for businesses like yours.