1 in 3 SMEs don’t understand cash flow, despite facing major challenges

Handling finances efficiently is an essential part of running a business day-to-day.

This includes cash flow, which is the movement of money that goes in and out of a business over a specific period. 

However, new research from Novuna Business Cash Flow reveals that a third of SMEs and sole traders aren’t aware of the basic principles of cash flow, despite most reporting challenges in this area.

The findings come in the wake of the Government’s 2025 Autumn Budget, which has led to a cautious economic outlook for UK businesses — adding extra pressure to an already tough operational environment for SMEs. 

But what’s causing this lack of knowledge, and how should SMEs tackle it?

Cash flow problems are hitting SMEs, but basic expertise is low

New data suggests that a significant number of SMEs don’t fully understand how cash moves through their business — even as it continues to impact their everyday operations.

Novuna Business Cash Flow’s research — which surveyed 1,000 SMEs — revealed that a third of respondents were unable to even correctly define cash flow. This is despite 82% of respondents reporting difficulties, including 68% of sole traders.

The most common reasons for cash flow issues included late customer payments (36%), seasonal shifts in sales (35%), and unexpected changes in trading conditions (27%).

Yet despite these concerns, many founders are turning to short-term solutions to fix these problems, with more than half relying on cutting costs, business loans, or borrowing from friends and family. 

“These figures show that cash flow problems are not occasional — they’re part of the everyday reality for most SMEs.” John Atkinson, Head of Commercial and Strategy at Novuna Business Cash Flow, says.

“When challenges come up repeatedly across the year, it not only puts pressure on finances but also limits a business’s ability to plan ahead and grow with confidence.”

Why are founders lacking in cash flow knowledge?

Founders often fall short of cash flow knowledge simply because of financial illiteracy.

Previous research reported by Startups found that there was a “widespread lack of financial confidence among entrepreneurs”, with 55% of SME owners admitting that they avoided dealing with finances.

Meanwhile, data by QuickBooks reveals that nearly half of founders surveyed (42%) said they had no financial literacy before starting a business. 

The rise in financial influencers (AKA “finfluencers”) online could be a likely culprit as well. Specifically, 19% of Brits are turning to them for advice, attracted by the promise of “free access to financial experts” — despite over half of investment scams taking place on social media.

Unsurprisingly, this gap in financial knowledge is also showing up in how business owners handle their tax returns.

Earlier this year, it was reported that nearly half of sole traders didn’t know about Making Tax Digital (MTD), despite the initiative set to become mandatory from April 2026. Another survey also found that 43% of freelancers didn’t know which tax band they belonged to. 

How can SMEs get better at managing cash flow?

The first step to understanding cash flow is learning the basics, which means getting comfortable with concepts like cash inflows and outflows, burn rate, and runway. Even just enrolling in online courses can help you learn how to manage money, forecast your cash flow, and budget your finances efficiently.

Tracking cash flow consistently — whether through accounting software or spreadsheets — can also help you forecast for the months ahead, so that you aren’t met with any unexpected surprises later on.

If you’re dealing with late payments, Emma Jones — the Small Business Commissioner at OSBC — can help you challenge unfair payment practices, get advice on overdue invoices, and even raise formal complaints if you’re owed money.

Moreover, getting expert advice can make a considerable difference in making important decisions. For example, an accountant or part-time chief financial officer (CFO) can be useful in spotting risks and suggesting smarter payment strategies.

These practices, coupled with careful expense management and keeping a close eye on incoming and outgoing cash, can help give you the confidence you need to grow your business, with far less financial stress.

Get paid with Emma

Emma Jones is the UK’s Small Business Commissioner, helping businesses get paid on time by tackling late payments and poor payment terms. Read her bi-monthly column for Startups now.

Get paid with Emma