From Negative to Positive: How to Recover from Negative Cash Flow

Negative Cash Flow

You probably know that more than 50 percent of small businesses collapse within a decade. But did you know over 80 percent of these businesses fail because they run into financial challenges? Poor or negative cash flow is one of these financial challenges.

Capital is the lifeblood of any business. If you run out of money, you won’t be to meet your operating expenses. This means the business will grind to a halt unless you can find ways to raise more money.

Staying abreast of your cash flow will help prevent your business from running out of money. What if you’re already having negative flows?

Here’s how to recover before it’s too late.

Identifying What’s Causing the Negative Cash Flow

A business with a record of positive cash flow doesn’t just plunge into negative territory. Usually, there is one or more factors causing the issue.

As such, the first step to recovering from negative cash flow is to investigate and establish the cause. It could be that your operating expenses have recently increased significantly. Or that your revenues have declined. Even cases of employee theft can dent a company’s finances.

Once you’ve established the cause, it’s easier to implement the right corrective measures.

Reduce Your Expenses

You can’t run a profitable business if the money that’s leaving is more than what’s coming in. Whatever has caused your cash flow to turn negative, one of the first measures is to reduce company expenses.

Look at your expenditure list and find expenses that you can do away with immediately. These should be secondary expenses, such as employee entertainment, that are not crucial to the running of the business.

To see the biggest reduction, however, you must rein in primary expenses. These include things like wages and rent. Relocating to a less-expensive office space or laying off redundant workers might seem harsh, but difficult situations call for difficult measures.

Pump Up Your Revenues

Increasing company revenues can make your cash flow turn positive.

Pulling this off is easier said than done, though. Perhaps the economy is in a recession and consumers are generally not spending their money. Or maybe your product just won’t sell because of quality issues.

If none of these conditions apply, launching a promotional campaign can boost your sales, thus increasing revenues. You could also introduce a new product or service if your finances allow.

Capital Injection

Reducing expenses or increasing sales within a short time isn’t easy for most small business owners. If you want a quick way to improve your cashflows without altering your operations, get more business funding.

You have a couple of options, but your best bet is to go in for a business loan. Lenders offer different types of loans and services, including working capital loans and term loans. You can also access specialized lending services, such as payroll funding and invoice factoring.

Keep in mind at debt financing has big implications and can make your business financial situation worse if not utilized wisely.

Improve Your Business Cash-Flow

Negative cash flow isn’t necessarily a bad thing. It’s not uncommon for many new businesses to burn through cash before they achieve profitability.

However, if poor cash flow is putting a strain on your business, it’s time to act. Reduce your expenses, increase revenues, and make use of funding opportunities.

Stay tuned to our blog for more business resources.