So what happens if you run into a cash flow problem? Do you have the money to buffer you temporarily or will you have to go into debt to manage for the next few weeks? Do you have a loan source available, or do you already have so much debt that adding to it is only going to make the problem worse?

The future health of your home-based business depends in so many ways on money. If you're having problems in any area of your finances, talk to an expert such as your accountant or a business consultant who's familiar with your area of operations. You need to get a handle on it quickly — by securing a line of credit, for example, or by applying for a consolidation loan to get your credit cards paid off at a lower rate of interest.

Undercapitalization

In other words, you don't have enough money. It's one thing to cut back on personal expenses and live off a small salary temporarily as you start your business, but when your lack of capital seriously compromises the service you're able to provide your customers, you're headed in the wrong direction. For example, if your lawn care business is behind schedule because you don't have the money to buy and maintain the equipment you need, you're in trouble.

Too Much Debt

A problem related to undercapitalization is having more debt than the business can handle. If your debt repayments each month are becoming difficult to manage, again — you're in trouble. Some small businesses start out with a reasonable debt but continue to borrow during cash flow crunches and end up accumulating more debt than they can pay off. Even if the small business owner is able to manage the debt payments, she's not left with enough money to reinvest in inventory and other expenses needed for growth.