According to Jessica Hagen of US Bank, about 82% of businesses that fail have some type of cash flow issue. Unfortunately, like its US counterparts, many Canadian companies experience cash flow issues. This is partly because few entrepreneurs take steps to manage their cash flow and finances properly.
When cash flow issues arise, empty bank accounts are only a few paces behind. In these situations, there’s no money to pay bills and employees, and no clear-cut solution. Fortunately, before it reaches that point, there are ways a small business in Canada can improve its cash flow. At Bizfund, our latest blog explores how Canadian businesses can practice better financial management.
What Is Cash Flow?
Before you can learn about how to improve cash flow as a Canadian small business in 2025, you need to understand what cash flow is. In simple terms, cash flow refers to the movement of money in and out of a business over a specific period.
When a company experiences a positive cash flow, it means they have more money coming in than going out. On the other hand, a negative cash flow means a business has more money going out than coming in.
There are mainly three types of cash flow. These include the following:
- Cash flow from investments: Usually, this refers to the movement of money related to the sale of your long-term assets, such as equipment and property, or the purchase of similar assets.
- Cash flow from operations: This often refers to the money you generate, spend, or lose, over the course of your business’s primary activities.
- Cash flow from financing: This refers to all cash flows resulting from raising funding and repaying debts to creditors and investors.
Why Cash Flow Matters
To improve your cash flow, it is vital to understand why it matters, particularly if you operate a small business in Canada.
Below, we talk about the many reasons cash flow should be one of your top priorities:
- It prevents you from relying on expensive debt: Many Canadian businesses rely on expensive debt when cash is tight. They turn to credit lines and high-interest loans. If your cash flow is positive, you don’t need to do this, or at least can wait until it’s a favourable opportunity.
- It helps keep operations running as they should: When you don’t have enough money on hand, even a small delay in customer payments can cause a missed payroll. It can also lead to your business being unable to pay suppliers and service disruptions.
- It helps fuel business growth: Having a stable cash flow allows you to grow. For example, having cash on hand allows you to expand into a new market, upgrade equipment, or even hire additional staff.
- It builds business resilience: Businesses always face unexpected costs. When you have positive cash flow, you have extra money when you need it most. For instance, if machines break or economic downturns occur, you’ll have money to act fast.
Common Cash Flow Challenges and Solutions
Now it’s time to examine the typical cash flow problems (some of which you may be experiencing) and their solutions. The following should give you a better idea of how to improve cash flow and be successful:
Upfront Supplier Payments
Unfortunately, many small businesses in Canada don’t have a steady income. This is especially true for businesses affected by market shifts and seasonal changes.
With these businesses, some months may be financially exceptional, while others could be slower and less fruitful. In these situations, it can be challenging to manage expenses consistently, such as upfront payments to suppliers.
The Solution: To combat this issue, you should build a cash reserve during peak periods. You can also consider diversifying your revenue streams and regularly forecasting your cash flow.
Late Client Payments
Businesses throughout Canada experience late client payments at some point in time. Unfortunately, when customers don’t pay on time, things can quickly tilt off-balance, especially when tight margins are at play.
As a small business in Canada, you still have bills to pay, employees to compensate, and suppliers to keep in your good books. When you’re left chasing overdue invoices, you lose time you could have spent growing your company.
The Solution: Many find that the solution to this problem is to establish clear payment terms and utilize automated invoicing tools to follow up on overdue payments. However, you can also try offering early payment discounts to entice people and companies to pay on time.
Questionable Credit Access
When finances are tight, it’s essential to have access to financing to improve cash flow. It can make a huge difference in your business, closing its doors or weathering the storm and coming out victorious on the other side. But sadly, many companies struggle to secure loans or lines of credit.
The Solution: To ensure you have access to financing when you need it for cash flow, the best thing to do is establish a good credit history. But, you can also explore alternative financing options, such as a merchant cash advance, that do not rely on credit scores as heavily.
Excessive Overhead Costs
If there’s one problem above all others that many businesses face regarding cash flow, it’s excessive overhead costs. Your rent, payroll, and utilities aren’t going away. When cash flow slows down, you still need to pay these. So if expenses keep adding up or your set monthly commitments are too much, you could very quickly face financial difficulties.
The Solution: A simple solution is to improve financial management through routine auditing of expenses and cutting unnecessary costs. You could also consider flexible lease options, remote work stations, and freelance assistance.
Emergency Expenses
Emergency expenses pop up when you least expect them. When equipment breaks down, emergency repairs are necessary, and legal fees arise, your cash reserves can quickly be depleted. Sadly, when a small business doesn’t have a financial cushion, these expenses can be devastating.
The Solution: A small business in Canada should consider setting aside a portion of profits specifically for emergency expenses. Typically, an emergency fund that yields a high return and can cover three to six months is recommended.
Tools and Resources to Improve Cash Flow Management
When you want to improve cash flow, you don’t have to go it alone. You can utilize various technological tools and resources to help you forecast potential pitfalls and make more informed decisions. Let’s have a look below at what we recommend you consider:
- Float: This tool allows you to create a real-time visual view of cash flow. This can help you make more informed decisions regarding your business and its finances in the future.
- Cash Flow Frog: For visual and scenario-based forecasting, you could use Cash Flow Frog. This tool offers integrations with popular accounting software, including Xero and QuickBooks.
- Tesorio: With late payments a serious problem for cash flow, using a platform like Tesorio may be beneficial for your business. This platform helps you reduce ‘days late outstanding’ (DSO) statements.
- Helm: Another good platform for real-time visibility into future cash positions is Helm. This tool was designed by financial advisors and accountants.
- Spreadsheets: If you’re looking for a simple and cost-effective solution for scenario planning to track ending balances, inflows, and outflows, spreadsheets could work.
- Forecasting worksheets: With these, you receive a prefilled worksheet that includes space to add scenarios for loans, potential cash sources, and expenses.
- Online webinars and guides: Organizations like BDC and Shopify offer online guides and webinars that you can use to learn tips and guidance about cash flow forecasting and management.
- Consulting services: If you have a newer business, it might be beneficial to consider consulting services to improve cash flow. Consultants can help you develop strategic roadmaps for managing cash flows.
Key Takeaways
Now you know that numerous tools and resources are available to improve how you manage cash flow. You also have a better understanding of cash flow, its importance, and the common challenges and solutions.
If your small business is currently struggling with cash flow and you need funds, you may want to consider a merchant cash advance through Bizfund. This financing solution can help you gain access to funds when you need them most, with a much reduced risk of falling victim to a debt cycle. You can learn more about it and us here.
