How To Fix Cash Flow Leaks Before They Sink Your Business

Now is the time to take a hard look at your cash flow. Not just your revenue and not just your profit, but your actual cash position. As a CPA, I’ve seen too many businesses coast through the first quarter (Q1) and get blindsided in the second quarter (Q2) when rising costs, late-paying customers, or unexpected expenses catch up with them. While economic headwinds do play a role, many cash flow surprises are caused, not by economic volatility, but by avoidable planning gaps that could have been addressed early on.

The second quarter of the year is often a revealing time for business finances. After the energy and goal-setting that often happens in Q1, the second quarter is where many business owners begin to notice issues that have been quietly building up. Tight cash flow. Forecasts and projections made last year or in Q1 are inaccurate. Operational expenses don’t quite align with income. If you’re having these problems, this is my advice for you.

1. Front-Loaded Expenses vs. Back-End Revenue

Many businesses front-load their expenses early in the year, committing significant cash to inventory, annual software subscriptions, insurance premiums, or big-ticket vendor contracts. The problem is that the revenue tied to those expenses often doesn’t arrive until weeks or even months later especially in businesses with longer sales or billing cycles. Strategic timing is everything when it comes to managing cash flow. Any delay or misalignment of expenses and revenue creates a mismatch that can leave you scrambling for liquidity either this month or in the coming months.

If you want to fix a revenue-expense mismatch, here are some ideas and the financial tools that can help you visualize and correct it:

• If your vendors offer monthly or quarterly payment terms, take advantage of them to spread your outflows more evenly throughout the year. This simple step flattens your cash burn rate and helps reduce pressure in low-revenue months.
• Create a timeline that aligns key expenses with anticipated income, especially if your business has seasonal or cyclical billing. Map out when receivables typically land, and schedule major expenses around those dates to avoid borrowing or dipping into reserves unnecessarily.
• Review your Cash Flow Statement (particularly the Operating Activities section). This statement shows the actual movement of cash separate from net income which means you can see when cash is going out vs. when it’s coming in. It’s best to focus on months where prepaid expenses, inventory purchases, or early vendor payments exceed cash inflows. Use this as your first priority or baseline to plan better cash flow timing in future cycles.
• Build a 13-Week Rolling Cash Flow Forecast. This short-term forecasting tool gives you a week-by-week view of cash inflows and outflows. It helps you anticipate cash shortfalls, plan spending, and make proactive decisions before things get tight. It’s a good idea to add your recurring vendor payments and payroll as fixed outflows, then enter projected receivables by week. This visualizes where shortfalls may occur and gives you time to act such as negotiating terms or adjusting timelines.
• Use a Budget vs. Actual Report with Timing Notes: A standard budget-to-actual report is backward-looking, but when enhanced with notes about when revenue or expenses occurred, it becomes a timing diagnostic tool. I recommend you identify expenses that landed earlier than the related revenue. Tag them for adjustment next year or explore whether they can be amortized or deferred to match income recognition.

2. Outstanding Receivables Are Clogging the Pipeline

Your accounts receivable (A/R) balance may look encouraging, but until that money actually lands in your bank account, it’s just potential not cash. And in Q2, many businesses begin to feel the lag from first-quarter invoices that haven’t yet been collected. Those unpaid receivables, especially if aging past 30 or 60 days, can create a ripple effect that leaves you short on working capital making it harder to cover payroll, invest in marketing, or capitalize on growth opportunities.

Aged receivables are especially dangerous because they distort your view of available resources. You might assume you have revenue coming in, but if your clients are taking 60 to 90 days to pay and your vendors want payment in 30 you’re facing a cash gap that can only be bridged with reserves or financing. This dynamic is a common blind spot for growing businesses that are operating without strong A/R reporting or collections discipline.

• Use an Accounts Receivable Aging Report Weekly: This report breaks down unpaid invoices by how long they’ve been outstanding (e.g., 0–30, 31–60, 61–90+ days). It gives you a real-time snapshot of who owes what and how urgent the issue is. Focus on the 31–60 day column. These are clients who may not be in default yet but are trending late. Prioritize outreach and escalate reminders here before they reach 90+ days and become harder to collect.
• Track and Benchmark Your Days Sales Outstanding (DSO): DSO shows your average collection period. A rising DSO means you’re taking longer to collect from clients, even if total A/R looks healthy. Monitor DSO monthly and compare it to prior periods or industry benchmarks. A consistent rise is a red flag that you should tighten payment policies, strengthen your contracts and agreements, and consider investing in collections software.
• Create a Monthly Collections Calendar: Following up consistently (not just when cash gets tight) builds better habits internally and signals professionalism to clients. I know, I know: Following up about money owed feels slimy but your business has to make money, right? As fellow business owners, many if not all of your customers will be able to empathize with your situation. Schedule outreach 7 days before the due date, on the due date, and again at 15 and 30 days past due. You can automate reminders via your accounting software (e.g., QuickBooks, Xero, NetSuite) or integrate with A/R management platforms like CollBox, Tesorio, or Versapay. 
• Incentivize Faster Payments: Early payment discounts (like 2/10 net 30) can boost cash flow without relying on loans or lines of credit. Run a test with your most reliable customers. Even modest discounts can shorten collection cycles and reduce admin follow-up time.
• Review Client Payment Terms Annually: Many businesses “set and forget” payment terms when onboarding clients. But those 45- or 60-day terms may no longer serve you, especially if vendors and payroll demand tighter cycles. Try to renegotiate terms with clients who consistently delay payment and consider requiring deposits or milestone billing for large projects.

3. Overestimated Sales Projections

It’s easy to enter a new year with optimistic revenue goals. But if your Q1 sales didn’t meet expectations, your current spending levels may already be outpacing what the business can sustain. This gap between planned revenue and actual performance creates immediate cash pressure and long-term strategic risk. Overestimating sales projections can cause business owners to commit to fixed expenses, like hiring, leases, or equipment, based on false confidence. Once the second quarter arrives and reality sets in, it can feel like it’s too late to unwind those decisions without cost or disruption.

• Build a rolling forecast model: A rolling forecast updates your revenue and expense projections based on actual performance from Q1 and revised expectations for the rest of the year. Unlike static annual budgets, this dynamic approach gives you flexibility to course-correct in real time. It helps you model how shortfalls or windfalls will impact your profit margins, cash runway, and headcount strategy. If your original plan was too optimistic, this is your opportunity to rebalance spending and make smarter, data-backed adjustments now, not six months from now.
• Run a contribution margin analysis by service line or revenue stream: When it’s time to tighten up your budget, don’t cut blindly. Focus on the profitability of each offering by calculating revenue minus direct costs to find the contribution margin. This reveals which products or services are funding your business and which ones are draining resources. Prioritize spending and resource allocation toward areas with strong margins, and consider eliminating or reworking lower-margin offerings that aren’t pulling their weight.
• Review budget vs. actual reports and identify root causes of sales variances: Budget-to-actual reports are more than compliance documents: They’re a strategic tool. If your Q1 sales missed the mark, ask why. Were assumptions too aggressive? Did customer demand shift? Did your pipeline fall short? As much as possible, categorize variances by type: timing issues, controllable performance gaps, or structural misalignments. This will give you the clarity you need to avoid reactionary cuts so you instead make targeted decisions that protect long-term goals.
• Refresh your sales forecast using weighted pipeline probabilities: Sales forecasts that assume every deal will close are dangerously misleading. Apply weighted probabilities to your pipeline based on stage or historical close rates. For example, giving proposals at the “negotiation” stage a 75% chance of closing, while early-stage leads may be weighted at 20–30%. This results in a more conservative, realistic revenue estimate you can use to guide staffing, inventory, and spending decisions in Q2 and Q3.

4. Tax Payments and Compliance Deadlines

Many business owners focus on profitability but forget that cash flow and tax obligations don’t always move in sync. As a business owner, you have significant tax obligations like federal and state estimated tax payments, payroll tax filings, franchise taxes, sales tax remittances, and regulatory fees. This kind of misalignment can leave you blindsided when cash flow is a trickle and multiple filings or tax payments are due.

Even profitable businesses can face problems if their tax obligations weren’t built into their 13-week cash flow model or monthly budget. That’s because many of these expenses are due quarterly or semi-annually, not monthly. Without earmarking cash in advance, tax obligations often become last-minute scrambles funded by credit cards, line-of-credit draws, or delayed vendor payments. To help you avoid this outcome:

• Map all tax deadlines into your financial calendar: Track federal quarterly estimated payments (like Form 1040-ES or 1120-W), payroll tax filings (Form 941, DE 9/DE 9C), sales tax remittances, franchise taxes, and business license renewals. Including these dates in a centralized calendar—ideally synced with your cash flow planning and reviewed monthly—helps ensure tax liabilities don’t get overlooked during busy operational periods or end up draining liquidity unexpectedly.
• Establish a dedicated tax reserve account.: Allocate a percentage of monthly revenue into a separate bank account labeled “Restricted – Tax Reserve” in your chart of accounts. Automating this transfer right after revenue is collected helps enforce cash discipline and prevents the accidental use of funds earmarked for tax obligations. This also gives you confidence that tax deadlines won’t require emergency borrowing or vendor payment delays.
• Work with your CPA to run a rolling quarterly tax projection: Instead of relying on static year-end estimates, use quarterly profit-and-loss data to update your projected tax liability throughout the year. This approach accounts for seasonal fluctuations, changes in deductions, or unexpected gains, and allows you to adjust estimated payments proactively. It also reduces the risk of penalties and supports better alignment with your overall cash flow model.
• Include tax obligations in your 13-week cash flow forecast: Add all known tax payment dates into your weekly forecast model alongside payroll, rent, and other recurring outflows. By treating tax obligations as fixed commitments, you can better anticipate shortfalls and avoid last-minute surprises. This also allows you to prioritize collections or shift discretionary spending if a tax-heavy week is approaching.

My Advice To Help Stay On Top Of You Cash Flow

Once you’ve identified and addressed the most common Q2 cash flow pitfalls, the next step is to strengthen the systems and habits that protect your financial stability. This is the season to transition from reactive to proactive cash management—ensuring your business can weather mid-year obligations, absorb surprises, and capitalize on opportunities without putting core operations at risk.

From a financial leadership standpoint, this means adopting a disciplined approach to managing inflows and outflows, reviewing patterns frequently, and tightening controls in areas where liquidity risk tends to hide.

To support healthy, predictable cash flow throughout the year, I recommend these best practices:

• Reconcile your books often: Small accounting errors compound quickly. Reviewing your general ledger, bank reconciliations, and transaction categorization on a regular basis helps you catch misclassifications, duplicate entries, or missing receipts before they impact your financial reporting or forecasting. It also ensures your month-end close is faster and more accurate.
• Implement spend controls across departments: Establish departmental budgets with clear spending thresholds for discretionary expenses such as travel, subscriptions, and office purchases. Review actuals weekly or biweekly to keep an eye on budget creep. Empower your department leads with visibility into their spending and require pre-approval for anything over a certain limit.
• Renegotiate vendor terms where possible: Revisit payment terms with suppliers, contractors, and recurring service providers. If you’re on net 15 or due-on-receipt terms, ask for net 30 or even net 45 to better match outgoing payments with incoming revenue. Consolidate vendors when possible to increase leverage and streamline accounts payable.
• Analyze product or service profitability: Run a contribution margin analysis to determine which offerings are generating true profit after variable costs. Look at gross margin by line of business, service tier, or client type to understand where your cash is being made—and where it’s being diluted. Redirect marketing, labor, and resource allocation toward your highest-margin categories.
• Build cash reserves ahead for planned expenses: Identify large upcoming payments such as quarterly taxes, business insurance renewals, annual software subscriptions, or seasonal inventory investments. Set aside funds now in a “reserve” account so these known events don’t interrupt payroll or strategic spending later in the quarter.

Let’s Get Your Cash Working for You

At MBS Accountancy, we work with business owners who want more than just compliance. We partner with you to build clear, forward-looking reports and short-term forecasts that align with your broader goals. Our mission is to give you the tools and insight to lead your business with confidence.

If you’ve ever felt uncertain about where your cash is going or you’re worried about what’s coming we’d love to help. This is the perfect time to get proactive and prevent cash flow surprises in the second half of the year.

Contact us today so we can talk about where your business is today and where you want it to be. My team and I are ready to help you design the reporting systems and cash management practices you need to make smart, timely decisions.