Where small business cash really goes missing: A fractional CFO's perspective

Pauline Healey is a fractional CFO and founder of Logical BI, an outsourced CFO and financial advisory practice supporting manufacturing businesses. Here, she shares where she most often sees businesses lose cash unnecessarily.

When I sit down with a new client for the first time, they often expect me to ask about their biggest customer, their competitors or that one invoice that's been outstanding for 90 days.

Those things matter, but they are rarely what's actually draining the business. After more than 25 years of opening up company accounts and sitting across the table from founders, I can tell you the real damage almost never comes from one dramatic event.

It comes from five quiet, unremarkable habits that, in some combination, I find in almost every business I work with.

Subscriptions nobody remembers signing up for

I have lost count of the number of times I've pulled up a client's bank statement and found three project management tools doing the same job, two design platforms nobody has opened in months and a CRM the whole team quietly abandoned.

Each charge looks harmless sitting on its own line. It's only when I add up 12 months' worth that the owner's face changes.

I encourage every business owner to do the same before their next finance meeting. It's one of the easiest wins on this list and almost always pays for itself.

Invoices that go out late and get chased even later

If I had to pick the single most common issue I see, it would be this. Cash doesn't land in a business when the work is finished. It lands when the invoice is paid.

Every day an invoice sits unsent, every time 60-day terms are offered because asking for 30 feels awkward, and every follow-up call that's skipped to avoid seeming pushy means the business is effectively financing its own customers, interest-free.

The solution isn't complicated. Invoice as soon as work is delivered, shorten payment terms where possible and automate reminders so collections don't rely on someone remembering to chase.

Supplier contracts nobody has looked at in years

I ask every client when they last renegotiated with their suppliers. The answer is almost always: "I don't remember."

The broadband contract signed four years ago. The insurance policy that auto-renews because shopping around feels like too much hassle. The supplier who was competitive at the start but has gradually increased prices over time.

Loyalty has real value, but unexamined loyalty can become expensive. A simple conversation to review a contract regularly saves many of my clients thousands of pounds.

Pricing that was never right – and scope that quietly grows

This is often the hardest conversation because it usually comes from a fear of losing the client, not properly costing the work in the first place or never reviewing prices as the business has grown.

Alongside that comes delivering more than was originally agreed because saying yes feels easier than challenging a request.

Neither problem is solved by working harder. They're solved by pricing with discipline and having a clear process for managing changes in scope. Done well, that doesn't damage client relationships – it strengthens them.

Stock and supplier payments sitting where they shouldn't

Cash tied up in stock, or paid to suppliers earlier than necessary, is cash that has stopped working for the business.

I see this regularly with product businesses attracted by bulk-buying discounts. The saving per unit looks attractive, but money sitting in a warehouse can't pay wages or fund future investment. If demand changes, that apparent saving can quickly become a liability.

Service businesses face a similar challenge when subcontractors are paid before customer payments have been received.

The principle I come back to is simple: delay what you owe for as long as the relationship allows and bring in what you're owed as quickly as the relationship allows.

Where to start

Almost every business owner asks the same question after seeing this list: which one should I tackle first?

My answer is usually invoicing and payment terms. It costs nothing, requires no structural change and can improve cash flow surprisingly quickly.

The most important step, though, is simply getting started. I've seen too many owners wait for the perfect time to deal with cash flow, and that moment rarely arrives.

The businesses that make the biggest improvements are the ones that identify one leak, fix it, then move on to the next. Each improvement creates a little more breathing space for the one after it.

This is the work I do with business owners and their finance teams every week – helping them understand what the numbers really mean for decisions on pricing, structure and growth.

Pauline Healey is a Fractional CFO and the founder of Logical BI, an outsourced CFO and financial advisory practice supporting manufacturing and service businesses. A CIMA-qualified accountant with an MBA and over 25 years’ experience, Pauline provides strategic financial guidance without the fixed overhead of a full-time Finance Director, delivered on a one-to-one basis. This can be a one-off project or an ongoing retainer, and for businesses looking to upskill their team, she has recently launched the membership platform Profit Harmony® Hub. 

To find out how Logical BI can support your growth plans, visit logicalbi.com or call 01772 287400.