What Can a Company Do if They Have Negative Cash Flow From Operations?

I think the following raises some excellent points about Negative Cash Flow. I’ve included a few of the highlights for you to get the gist of the article:

It’s possible to make money on the sale of your product or service and still not have enough money to pay your bills on time. Negative cash flow doesn’t necessarily mean you’re not profitable. It could be that your bills are coming due before your customer invoices get paid. In others cases, negative cash flow results from losses on sales. When you have negative cash flow from operations, you can take several steps to take advantage of the fact that you’re profitable, or address the reasons you’re not.

Step 1

Confirm that you have a net loss from operations and not just negative cash flow. Subtract the amount of payables you have from your receivables, using only payables and receivables related to operations, not activities such as debt service. Determine if your negative cash flow results from the timing of your payables and receivables, rather than from their amounts. For example, you might receive a $30,000 order that costs you $25,000 in operating expenses to fulfill, making you profitable. However, your bills for materials and your payroll related to this order might be due within 30 days, while the credit terms you gave to the customers who placed the orders gave them 90 days to pay you.

Step 2

Negotiate more favorable credit terms with customers and suppliers to change your cash flow situation. Create long-term cash flow projections using last year’s payables and receivables histories, provided they will be similar during the coming year. Use current trends and any other qualitative analysis to create a more accurate scenario for the coming year. Use this information to create a positive cash flow for your business based on your income and expenses. Discuss with your customers your need to reduce their invoice payment times and talk to your vendors and suppliers about needing longer payment times. Your customers and vendors might be happy to help so that they can continue to have access to your product and continued business orders. Offer different terms to new customers than you do to existing customers.

What do you think? Maybe you’d like to read on? Check out the full version here then give me a call to discuss how this might impact your own business: (0429) 011-071. Alternatively, email me at [email protected].

To your success,

Ian