Are small business owners suffering from cash flow complacency?

A recent survey of small business owners suggests many are making a fundamental financial mistake as they overestimate their ability to manage cash flow.

The poll, conducted by online banking and money management platform Relay in partnership with independent research firm RKI, covered more than 750 small and medium-sized businesses.

Relay’s newly published Cash Flow Compass report suggests that business owners are, on average, 42 percent overconfident in their cash flow management. Over the past year, roughly three-fifths (62 percent) of respondents say they’ve have experienced negative impacts from cash flow issues, running the gamut from missed growth opportunities to delayed projects and reduced staff hours.

 “Having a realistic grasp on your cash flow is crucial for any small business,” said Mike Michalowicz, serial entrepreneur and author of Profit First, a Wall Street Journal bestseller. “Relay’s report reveals business owners are overconfident and that can lead to risky decision-making.”

The findings emphasize how widespread cash flow challenges are among small businesses. Ninety-one percent of owners and managers reported facing cash flow issues, with key drivers being rising labor costs, seasonal fluctuations, and late payments from clients.

And while an emphatic 95 percent majority of business owners regularly check their bank balances, most are failing to organize their finances properly. Only 24 percent said they organize their income across different accounts which, done right, could yield a rich spring of financial insight.

Relay’s CEO, Yoseph West, suggested that business owners’ cash flow confidence could be driven in part by an entrepreneurial mindset that lends itself to bullishness.

“There is a powerful optimism at the heart of every small business, but sometimes that optimism can skew a business owner’s perception of their cash flow control,” West said.

The report also revealed that nearly a third of businesses have missed significant payments in the past year. Further accentuating the negative, more than two-thirds of business owners said cash flow issues have negatively impacted them in various ways, saying their problems have made them stressed, burnt out, or kept them up at night.