Do your numbers look good on paper, but the cash never seems to follow? You’re not alone. Many businesses close the quarter showing healthy margins, yet the bank balance tells another story. Payroll gets covered from a personal account, supplier payments are delayed, and you’re refreshing your banking app waiting for overdue invoices to land. This is the profit paradox.
According to our annual Cash Flow Compass report, 82% of small businesses say they have good margins, but 94% face barriers that eat into that profitability. Those challenges are a reminder that profit is fragile without systems. When businesses lack the right structure, even the most profitable can find themselves short on cash when it matters most.
In this piece, we’ll take a look at why profit doesn’t always equal stability, the hidden pressures cutting into it, and the systems that turn profit into real staying power.
Why small businesses say they’re profitable
After years of uncertainty, personal spending is finally climbing again. Global consumers say they’re buying more now than at any point in the past four years. In the U.S., household spending rose nearly 7% compared to 2022—an increase of about $1.17 trillion.
This rebound isn’t just about improved finances. While nearly 30% of consumers are now better off financially compared to a year ago, they’re also spending with more intention. More people are choosing to pay a premium for products and services that align with their values and come from local, trusted businesses. That often looks like supporting brands that emphasize sustainability, fair pay, and community impact, or choosing neighborhood retailers, independent cafés, and small service providers over national chains.
The shift in consumer behavior is doing more than lifting sales—it’s expanding what’s possible for small businesses. According to the Global Technology Industry Association, adding new customers and exploring new markets is now one of the top two business objectives for small companies. With spending power returning and customer loyalty strengthening, profitability is improving for many. However, lasting stability will hinge on keeping expenses in check.
The barriers that eat into profitability
For many business owners, the hardest part isn’t earning profit—it’s keeping it. Our report found that 94% of small businesses face obstacles that cut into profitability, even when sales and margins look strong on paper. Rising costs, staffing challenges, and unpredictable cash timing are the biggest reasons why profit often slips away before it ever reaches the bank.
According to the Fed Small Business, 75% percent of employers say the price of goods, services, or wages has climbed, pushing margins thinner before owners can adjust. Labor adds another layer of strain: more than half plan to expand staff this year and offer higher pay and better benefits to stay competitive. And cash flow timing can undo it all. Over half of small businesses report late payments that keep cash tied up when they need it most.
Real-world stories make this reality clear. One owner told us, “We missed bills all the time. The unexpected thing shows up, or someone delivers on a project that you signed a contract on five months ago, and you forget about it. And that bill comes due and you’re like, ‘We don’t have that. We didn’t plan for that. We lost sight of it.’”
The impact of rising costs
Resilience isn’t a buzzword right now—it’s survival. Nearly every business owner can feel the pressure of higher costs, whether it’s from suppliers, software, or payroll. Our report shows that 86% of small businesses have seen their expenses climb (by an average of 11%) and one in four say those increases have been “extremely significant.”
It’s no surprise, then, that inflation remains the number-one economic challenge facing owners this year, according to the U.S. Chamber of Commerce. Even with stronger sales and steady consumer demand, costs are climbing faster than most businesses can keep pace.
That’s where profitability starts to slip. When the cost of materials, freight, or labor grows, each sale can end up delivering less margin than the last. Owners may be moving more product or signing more clients, but the returns don’t stretch as far.
Why profit alone doesn’t mean stability
Margins don’t pay bills—cash does. And for many small business owners, that gap between what’s earned and what’s available keeps getting wider. The profits might be there, but the predictability isn’t. Nearly half say they’re not ready for a downturn, and most expect one soon.
Even when conditions look steady, volatility hides in the background. Unexpected expenses, slower sales cycles, or one missed payment can unravel months of hard work. Many owners admit that while they know how to earn money, they’re less confident about protecting it. The disconnect runs deep: 95% say they feel capable of managing cash, but fewer than half have the safety net to prove it.
Our report uncovers why this tension persists. Instability doesn’t just appear when the economy dips; it lingers even in strong years. Sales climb and optimism returns, but liquidity remains fragile. That’s because stability isn’t built from profit—it’s built from systems that separate, safeguard, and strategically allocate cash.
How businesses can protect and strengthen profit
So how do small businesses build the kind of systems that keep profit steady—no matter what’s happening around them? It starts with structure. That begins with keeping tax, payroll, and operating funds in distinct accounts. This ensures every dollar has a purpose—and that what’s meant to be saved never gets spent.
It also means tracking cash flow consistently, not reactively. When owners check their inflows and outflows weekly, they get a clearer picture of where their money’s going and what needs attention before it turns into a problem.
Then comes discipline. Setting clear spending rules, automating transfers, and earmarking reserves builds protect profit even when conditions shift. Tools like Relay make this easier—helping business owners collect payments in one place, automate allocations into dedicated accounts, and seamlessly set aside money for taxes, savings, or future growth. These systems turn cash management into a strength instead of a stress point, giving owners more control and confidence, no matter what the economy brings next.
Profit might show up in your books, but real stability comes from the systems behind it. To see how other small businesses are protecting their margins and strengthening their financial foundations, read the full Cash Flow Compass report.
Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank.
