A cash flow crisis can happen regardless of size, affecting small companies and major enterprises alike. Business owners who anticipate it can prevent it — but they must understand what to look for. What are the early warning signs of cash flow issues?
1. Taking Away Office Freebies and Perks
Office supplies, toiletries and break room snacks are inexpensive and are tax write-offs. Businesses that remove or cheapen them for measly cost savings likely can’t afford to wait for tax season.
The provision letting them deduct cafeteria, takeout and coffee costs is set to sunset in 2026. Collectively, this will cost them an estimated $300 million extra each year in taxes. Those who can’t afford them without the deduction may be experiencing cash flow issues.
2. Dipping Into Personal Bank Accounts
Covering office expenses with personal funds indicates a lack of liquidity. While occasionally dipping into these accounts is a sacrifice many make to stay afloat when times are tough, it is not a long-term solution. Credit cards and loans are good alternatives.
3. Not Understanding Cash Flow Basics
Decision-makers should be familiar with their spending habits. A U. S. Bank study found that 82% of companies fail due to poor understanding and subpar cash flow management. They can’t fix the problem if they don’t know its cause.
Invoices, payroll, earnings and expense reports should be in a central location — ideally, a digital one for remote access. This way, management can optimize the process and address costly errors.
4. Borrowing More Without Paying Off Debt
Borrowing from lenders without paying off existing debt is a sign something is wrong financially. Interest piles up quickly, especially when multiple loans have varying terms. It is a desperate move to ensure short-term stability.
People should only take out multiple loans if they can afford to pay the balance and interest off. Getting one in anticipation of a windfall is technically a viable strategy, but it is risky.
5. Watching an Increasing Debt-to-Income Ratio
Firms won’t be profitable if debt increases every time income does. This pattern suggests they are spending outside of their means, hoping their growth will outpace the interest on their loans. They should pace themselves instead, only applying for a new loan once they pay off the old one.
6. Setting Commission and Bonus Targets Higher
Making bonus and commission targets harder to reach is a sign of cash flow issues. It may even demotivate employees, adversely affecting productivity and sales. If organizations can’t afford to pay them, they should offset the change with other noncash perks.
7. Seeing Sales Increase but Not Profit
While not all startups are initially profitable, going months or years in the red is a recipe for disaster. If sales are up but profits are not, they must evaluate expense reports to cut unnecessary costs.
8. Paying Employees or Vendors Late
Some people resort to delaying paychecks to stretch their funds. Labor accounts for 70% of spending, making it the No. 1 cost factor — so this tactic is relatively common. However, this cost-cutting measure backfires if employees file a wage claim or lawsuit. It is far better to fire redundant staff, end contracts, advertise unpaid internships or cut hours.
9. Suspending 401(k) Matching Contributions
Suspending 401(k) matching to offset cash flow issues signifies a crisis is on the horizon. Making significant financial changes that impact employees has a lasting impact on job satisfaction and retention. Limiting contributions is a much better alternative.
10. Switching to Unlimited Paid Time Off
Offering unlimited paid time off instead of a set number of days allows firms to avoid paying unused time upon termination. Those who switch aim to minimize the costs associated with layoffs. This strategy isn’t inherently bad. However, it is a sign to watch out for.
11. Using Personal Cards for Business Expenses
An estimated 61% of entrepreneurs use their personal cards for business purchases. Nearly 75% use it at least monthly, not just for emergencies or temporary spending. Using credit to pay for expected expenses like loans and invoices indicates cash flow problems. Business owners should revisit their expenses to optimize their spending habits.
12. Accumulating Multiple Unpaid Invoices
A cash flow crisis is imminent if multiple customers — or one large client — don’t pay on time. Entrepreneurs should increase their collection efforts immediately. Automated invoicing and sending overdue payment reminders can help. If all else fails, sending unpaid invoices to collections is an option.
13. Laying off Entire Teams or Departments
Laying off entire teams, implementing a hiring freeze and clock-watching are often last-ditch efforts to cut costs and improve cash flow. These strategies can make it harder to attract and retain good talent, potentially impacting profitability in the long term.
Automation is an excellent alternative. Artificial intelligence can save companies money by eliminating human error and improving productivity. It can also help them take control of their profitability by optimizing operations and anticipating future trends.
14. Reducing the Frequency of Office Cleanings
Firms with physical branches often hire third parties to clean the office. Reducing cleaning frequency saves money, but it is low on the list of cost-cutting priorities. Companies are likely strapped for cash if they have gotten to this point. However, it isn’t necessarily a bad strategy if it doesn’t negatively impact employees.
15. Dreading Seasonal Demand Fluctuations
Seasonal changes can hit hard. However, entrepreneurs shouldn’t dread them. The Small Business Index for the second quarter of 2025 reports that 73% of business owners are comfortable with their cash flow. They may have ups and downs but aren’t in dire straits.
If the slow periods are increasingly painful each year, intervention is essential. Business owners should scale back inventory or adjust prices to lower overhead and increase sales.
Identifying and Addressing Cash Flow Issues Early On
Many entrepreneurs experience cash flow issues since everything from economic changes to supply chain disruptions has ripple effects. Addressing these problems before they snowball is the best way to avoid a crisis.