As a small business owner, you constantly monitor the money coming into and going out of your company. Sometimes, there are periods where you earn less than you spend, resulting in a negative cash flow. Take steps to reverse a negative cash flow to get your business's finances on track again.
When do you have negative cash flow?
In business, it's nice to have a snapshot of how well you're doing. In one document, like a balance sheet, you can see how much revenue you have at a particular moment. Did you make money or lose money? The answer is there in black and white.
But, limitations come with this picture because situations frequently change in business. Money continuously filters through your company.
To see when funds come in and out of your business, you need to manage cash flow. Cash flow shows the timing of incoming revenue and outgoing payments. It is a reflection of liquidity, or your ability to convert the goods or services you sell into cash.
Sometimes, you have more incoming than outgoing money. This means your business has positive cash flow, which is good. You're earning more than you're paying, so you are making a profit.
On the other hand, your business could experience a negative cash flow. Negative cash flow occurs when you have more outgoing than incoming funds. In other words, you're making less money than you're spending.
Long-term negative cash flow can do serious damage. A small business could experience late fees, penalties, and a ruined reputation. If you have negative cash flow, you should take steps to recover.