Negative cash flow
The health and stability of any business are often evaluated on the basis of its cash flow. If a business is
bringing in more cash than it is spending, it is said to be cash-flow positive. On the other hand, if it is bleeding
more cash than it’s acquiring, it’s referred to as cash flow negative.
Now, conventional wisdom suggests that a business that’s cash-flow positive is more stable and doing well
financially as compared to the business that’s cash flow negative. In some cases, this might be true but overall,
it’s not that simple. We need to take a much broader look at some of the other factors and variables of the
business to develop an understanding of its stability and financial health.
Is It Okay to Be Cash Flow Negative?
If you check out the financial records such as balance sheets and profit and loss statements of large
corporations, you’d observe that even they choose to go cash flow negative for some time. Amazon, which is
currently the largest online e-commerce platform, stayed cash flow negative for years. What such businesses
usually do is reinvest their revenues, the cash that they are bringing in, into future growth opportunities such
as building infrastructure, acquiring top talent, streamlining the supply chain, creating a better digital
presence, branding, and more.
This means that while they are cash flow negative currently, they are developing a more stable and profit-
oriented business for the future. So yes, it is okay to be cash-flow negative as long as your business is
planning for the future. If that’s not the case, then you need to estimate why your business is cash flow
negative and how can you manage your cash flows to extend the business operations.
Estimating Business Cash Flow
Determining the cash flow of the business is essential as it helps you come up with a viable cash management
strategy. A couple of numbers you need right away include the following:
· The reserves of cash your business has at hand.
· Weekly or monthly outflows of cash.
For instance, if you have $50,000 cash at hand and your monthly expenses are around $10,000, you have five
months of runway. However, estimating cash flow isn’t that simple. In order to get a clearer picture, you also
need to know the following:
– The cash you’re going to bring in the next few months could be in the form of additional revenue, a new
loan, or an investment. These will have a positive impact on your reserves giving your business a chance to
operate for longer.
– Another factor you need to consider is unexpected cash outflows which could include major repairs, tax
bills, loan payments, or major acquisitions. These will have a negative impact on your reserves reducing your
ability to stay in operation.
How to Manage Negative Cash Flow
The first and the most obvious way to reduce your negative cash flow is through expense management.
Review all of your expenses and cut down the ones that aren’t absolutely necessary. Even a 10% to 20%
reduction in monthly expenses can improve your business’s financial situation.
Increase Revenue Streams
Another factor that can have a major and the most sustainable impact on your cash flow is your sales or
revenues. Make all efforts to sell more of your product or service as it enhances your chances of improving
cash flows by a wide margin.
Renegotiating Financing Terms
Another way to manage your negative cash flow is by negotiating the terms of your financing payments that
are going to be due in the near future. If you can extend the deadline of making payments to your vendor or
rescheduling loans. Although these are short-term measures, they can provide you with a lifeline when
Go For Invoice Financing through Lendo
One of the best ways to bridge the gap between your cash inflows and outflows is to receive the payment
that’s actually owed to your business. You can cash your receivables through the invoice financing app Lendo
and become cash rich instantly. The primary advantage of this strategy is that it’s not a short-term solution as
you can continue to cash your receivables as long as you’re in business and maintain a healthy and stable cash
flow without having to deploy any shortcuts or troubling your customers.