Skip to main content

Cashflow Problems? It Might Not Be What You Think

Watch the original video: Stephen explains cashflow and profitability →

“I’ve Got a Cashflow Problem…”

This week’s newsletter is based on a real coaching conversation with a business owner.

The business is growing.
Revenue is up.
The team is bigger.
The numbers are larger than ever before.

But cashflow feels tight.

There’s pressure around:

And the natural conclusion is:

“I’ve got a cashflow problem.”

But here’s what I explained:

Cashflow problems are usually a symptom. Not the root cause.

The Warning Light on the Dashboard

Think of cashflow like the warning light on your car dashboard.

The light isn’t the problem.
It’s telling you something underneath needs attention.

For business owners who want to take this further, book a Profit First strategy session can help you put it into practice.

When I reviewed 18 months of this client’s figures on our very first call, the picture became clear very quickly:

Yes, cashflow was tight.

But the real issue?

The margins were too thin.

And when margins are too thin, everything feels fragile.

There’s no breathing space.
No buffer.
No room for mistakes.

You’re one unexpected bill away from stress.

Growth Magnifies Weakness

Here’s something most business owners don’t realise:

Growth doesn’t fix financial weaknesses.
It magnifies them.

If your margins are tight at £500k turnover,
they’ll be painfully tight at £1m turnover.

More revenue means:

If the profitability engine isn’t strong enough, growth simply increases the pressure.

The Real Question: Why Aren’t You Making Enough Profit?

Once we established it wasn’t “just” cashflow, the better question became:

Why is the business not producing enough profit?

And this is where proper analysis matters.

At Gro Profit First Accountants, when we do a Profit Assessment, we’re looking at:

Without benchmarking, you’re operating in the dark.

Benchmarking: What Does Good Look Like?

Let me give you a simple analogy.

My son runs the 100 metres in around 11.4 seconds.

Is that good?

It depends who he’s racing.

If he’s compared against runners doing 14 seconds, he looks exceptional.

If he’s competing nationally, the benchmark changes.

In business, it’s exactly the same.

If your peers are running 20% net margins and you’re running at 5%, that’s not a cashflow issue.

That’s a profitability issue.

And until you understand what’s realistically achievable in your industry, you’ll normalise underperformance.

The 5 Most Common Causes of Profitability Problems

In my experience, profitability issues normally come from one (or more) of these areas:

1️⃣ Pricing Is Too Low

This is the big one.

A 10% discount doesn’t reduce profit by 10%.
It can reduce profit by 30–50%, depending on your margin.

Many business owners underprice because they:

But inflation, wages, and supplier costs move — your pricing must too.

2️⃣ Discounting Has Become Habitual

Occasional strategic discounting is fine.

Permanent discounting destroys margin.

If your team discounts without understanding margin impact, you’re quietly eroding profitability.

3️⃣ Payroll Structure Is Too Heavy

Payroll is usually the largest cost in most service businesses.

Ask yourself:

A bloated or misaligned structure creates constant financial pressure.

4️⃣ Inefficient Processes

The business owner I mentioned is bringing in a lean consultant.

Why?

Because inefficient workflow costs money.

Toyota built its reputation on Kaizen — continuous improvement.

Small inefficiencies repeated daily become large financial drains over 12 months.

5️⃣ Lack of Financial Visibility

Most business owners look at their bank balance and make emotional decisions.

But your bank balance does not equal profit.

Without:

You are reacting instead of leading.

Where Profit First Comes In

Profit First works because it uses behaviour, not willpower.

Parkinson’s Law says:

The more of something we have, the more we consume.

If you see £80,000 in your bank account, you feel comfortable.

If you see £12,000 available for expenses because profit, tax and owner’s pay have already been allocated — you become more resourceful.

Profit First forces discipline automatically.

It creates artificial scarcity in the right way.

It strengthens the engine before the car breaks down.

Timing Problems vs Profit Problems

Now, to be fair, sometimes cashflow genuinely is about timing.

For example:

But if you are:

Then persistent cashflow stress usually points back to profit.

Practical Steps You Can Take This Week

If any of this resonates, here are 5 things to do immediately:

1️⃣ Calculate your true net profit margin for the last 12 months.
2️⃣ Review your pricing — when was the last increase?
3️⃣ Check payroll as a percentage of revenue.
4️⃣ Identify any “automatic” discounts being given.
5️⃣ Separate profit from your main account if you haven’t already.

Even small margin improvements create massive breathing space over time.

Final Thought

If your car keeps breaking down, you don’t just reset the warning light.

You lift the bonnet.

Cashflow pressure is stressful. I get that.

But if you fix the profit engine, the cashflow warning light often disappears on its own.

If you’d like help reviewing your numbers properly, you can reach me directly:

📧 hello@wearegro.co.uk — or book a Free Profit Meeting to look at your numbers together.

Let’s make sure your business is not just growing — but profitable, stable, and giving you the freedom you actually want.

Have a great week.

Stephen Edwards
Profit First Accountant and Business Coach
Gro Profit First Accountants

📗 Haven’t read my book yet?
Get your copy of How to Build a Business That Runs Without You on Amazon now.

Ready to take action? get a free strategy session worth £180.