ULTIMATE CASH FLOW GUIDE

Chapter 2: Positive and Negative Cash Flow

ULTIMATE CASH FLOW GUIDE

Chapter 2: Positive and Negative Cash Flow

Introduction

Can cash flow be negative?

Yes. When your cash outflows for a specific period are higher than your inflows, or money coming in, you’re experiencing negative cash flow. This doesn’t necessarily mean that your business is operating at a loss, but rather that your expenditures outweigh your income for that period.

What is the cash flow break-even point?

Your cash flow break-even point occurs when your expenditures and income for a specific period are equal.

How can a negative cash flow affect a business?

Many businesses experience short term negative cash flow; you’re not alone, and it is fixable. However, longer term negative cash flow can have serious business implications. The inability to pay suppliers or employees on time can damage your most important relationships. Additionally, lenders or investors who see negative cash flow over time may conclude that your operations do not provide enough income to support the business.

Can I borrow funds with a negative cash flow?

In many cases, you can borrow funds and even grow your business with negative cash flow. At FundThrough, we understand the bigger picture and take all of your operational, investment and financing activities into account. Our invoice funding service allows you to borrow funds to cover your payroll, buy inventory, purchase equipment, advertise, and expand your operations, even while you await payment from your customers.

Is positive cash flow the same as growth?

No. There are different types of cash flow: operational, financing and investing. You may be experiencing positive cash flow growth in one area but negative cash flow in another. For example, anticipating a customer paying late you might sell a piece of equipment to increase the month’s investing cash flow in order to cover negative operating cash flow. Even though you’re now able to cover your immediate expenses via positive cash flow, selling off company assets isn’t a sustainable model for growth.

Is positive cash flow the same as profit?

No. Just as negative cash flow doesn’t necessarily indicate losses, positive cash flow isn’t an indicator of profit. Because there are different types of cash flow activities (operations, financing and investing), it’s important to understand what it actually means for the health of your business. Your cash flow statement will provide better context for the effect of positive cash flow on your business.

Can I maintain positive cash flow with debt?

Absolutely. In fact, taking on debt with a term loan is a common way of generating or maintaining positive cash flow over a period. Alternative short-term financing solutions like FundThrough’s invoice financing can help you to manage cash flow and grow your business even while you await customer payments, without incurring additional debt.

What should I do when cash flow is negative?

It’s important to get back to a state of equal or positive cash flow as soon as possible. Not only do you need to take care of immediate expenses like payroll, equipment and supplies, but negative cash flow over time can be an indicator to potential investors and funders that your business isn’t thriving.

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