For ambitious entrepreneurs, scaling up can be both an exciting and perilous journey. While expansion offers access to new markets, increased revenue and greater operational reach, it also exposes scale-ups to one of the most common, and potentially fatal, challenges – that of poor cash-flow management.

Many start-ups fail not because they are unprofitable, but because they run out of cash to cover their expenses, even if they have strong sales. In the UK, one of the main reasons behind start-up failures in the first five years is poor cash-flow management. Even businesses with strong order books and rising revenues can quickly find themselves in trouble if their cash flow doesn’t keep pace with their ambitions.

Accountants play a vital role in helping scale-ups recognise, anticipate and manage the financial pressures of growth. Here, we explore the key cash-flow pitfalls faced by scaling businesses, particularly in today’s uncertain economic times, as well as outlining practical ways to mitigate risk.

Economic uncertainty

In a stable economy, it’s easier for businesses to predict demand, secure credit and rely on consistent customer behaviour. In contrast, during times of economic volatility marked by inflation, high interest rates and fluctuating consumer confidence even well-established companies can experience cash-flow shocks.

For scale-ups, the stakes are even higher. Growth often requires significant investment in staff, infrastructure and marketing before the corresponding revenue materialises. A small misstep or delay in cash inflow can quickly spiral into a liquidity crisis.

One common scenario is once a start-up is ready to scale up and has raised finances to do so. At this point the entrepreneur might be feeling flush and wanting to expand quickly. “One of the pitfalls that you can commonly see is that there’s this charge for growth without due consideration and careful planning, and a true understanding of what a scarce resource cash is for scaling businesses. In many cases, these businesses are not sustainable at the point they’ve got the money in,” says Romesh Jeyaseelanayagam, Founder and Consultant at The FD Consultant.

Without wanting to dampen entrepreneurs’ enthusiasm, Jeyaseelanayagam continues, “Obviously go for high growth, but do it in a sustainable, carefully prepared, well-planned manner.”

Typically, scale-ups look positive on paper with growing customer bases, expanding product or service lines and blossoming sales. But a closer look will often reveal that profits haven’t yet caught up with the pace of growth.

“Growth should be thought about very carefully in advance of deploying any funds. Growth needs to be effective and sustainable. The levels of start-up and scale-up failure show that there isn’t enough focus on growing both revenue and profits as well as making the business cash-flow positive,” Jeyaseelanayagam says.

Anne Allibone, portfolio CFO and commercial adviser for start-ups, scale-ups and SMEs, concurs. “You have to decide how fast you want to grow and where and when to optimally invest funds. You can go about it in a couple of different ways. If you go on the track that you’re wanting super-fast growth, you’re likely to have to raise quite a bit of cash, which is likely to be followed with further cash requirements if you’re not achieving your plan or growing as quickly as expected. Make sure you are monitoring the success of your growth strategies so you can pivot if your assumptions don’t appear to be correct.” 

Contrast this with entrepreneurs who are happy to grow at a slower pace, using business-generated funds or minimal external cash. “You won’t be able to grow as quickly because you’ll be spending less on driving growth, but it’s a lower risk approach. Think about what your ambitions are as a business, your risk appetite and your industry and competitor positioning,” Allibone says.

How long is your runway?

It’s also critical to always understand what your cash-flow runway looks like to be able to pull and push levers to resolve upcoming issues. “It’s much, much better to know that there might be an issue in four or five months rather than be blindsided by a major problem only two weeks away,” says Jeyaseelanayagam, who also hosts the podcast Strive & Thrive for entrepreneurs.

Be aware of overestimations

Scaling usually means higher spending, from salaries and office space to technology and supplier contracts. Without rigorous cost control, this can lead to serious liquidity problems.

It’s essential to implement cost management processes early. Use historical data to benchmark spending, negotiate with suppliers and regularly review variable and fixed costs. Embed financial discipline into decision-making processes.

Establish budget owners across departments or teams, require pre-approval for discretionary spend and track variances monthly. Cost controls should be flexible enough to scale with growth.

“If, for example, you recruit too many people too quickly and you haven’t got the revenue coming in, you’re going to continue to drain cash quickly. So again, step by step, does your spending align with your objectives?” Jeyaseelanayagam says.

Whenever you’re considering a big spend, consider other options such as hiring part-time or seasonally, he says, “There’s no black and white solution. There is nuance.”

Create a detailed and regularly updated cash-flow forecast. This should project inflows and outflows on a rolling 13-week basis, reviewed at least monthly. A separate cash-flow management statement can help summarise key risks, upcoming obligations and contingency plans.

Poor payment terms

Late payments are a major burden on small businesses in the UK, estimated to cause 50,000 business closures and costing £2.5bn annually. More than half of small businesses suffer from late payments, jeopardising their cash flow, according to the Federation of Small Businesses.

It’s vital to establish clear credit control procedures, set out payment terms upfront and offer incentives for early payments. Also follow up promptly on overdue invoices. Accountants should also encourage the use of technology to improve these processes.

Allibone says there are lots of options for billing clients to help maximise your cash, such as on a subscription basis, upfront where possible, offering multi-year or early payment discounts, or requesting payments on account in certain industries. 

“At what points do I have the commercial triggers that mean people are more willing and able to part with their cash? It’s about adding good housekeeping controls to ensure that you align your cash collection strategies with the commercial advantages you have to reduce the risk of getting into difficult situations,” she says.

Accountants are uniquely positioned to bring clarity, discipline and foresight to scale-up finance. As economic conditions fluctuate, businesses that can manage their cash proactively, not just reactively, will be in the strongest position to thrive.

By helping clients avoid common cash-flow traps and embed strategic financial planning into their growth journey, accountants can become not just advisers, but enablers of sustainable growth.