Negative Cash Flow - Quick Guide

Negative Cash Flow is when you spend more than you earn. It can be simple to define but not that simple to tackle.

Negative Cash Flow is not a concern as long as you don't make it a recurrent situation, but, if you leave it that way for too long, it will become a major issue.

Remember that Cash Flow can be from Operations, Financing activities or Investments, and each has its own particularities. Let’s focus on the day to day Operations Cash Flow.

So… Negative Cash Flow! What can you do about it?

There are a few things, but the first real question should be another. Why is it Negative?

Like in any problem, your first step is to find the source of the problem. Are you spending too much or are you earning too little?

Finding the source and stopping it immediately is crucial, even though it can be easier said than done.

Now let’s go back to the original question. What can you do about it and what can you change?

Two options: increase revenue to increase your earnings or control your costs to stop spending too much.

Here is a quick sum up of options.

• Up Sales & Increase Revenue
• Sell More
• Increase prices to new and/or recurrent clients
• Increase your new clients
• Cross Sell / Up Sell
• Sell Better
• Process Improvement
• Manage Receivables
• Renegotiate Clients Payment Terms
• Improve Collection Management
• Control Costs
• Manage Payables
• Renegotiate Suppliers
• Manage Stock / Inventory
• Reduce unnecessary stock/inventory
• Manage Overhead
• Cut & Renegotiate costs

Increase prices to new and/or recurrent clients
First thing is to make sure your pricing is correct and does account for all your costs. Inadequate pricing kills any business. It can be the easiest way but remember to give current clients some "added-value" justification about the price increase to avoid possible churn.

Increase your new clients
To increase your effort to acquire more new clients you will also increase your lead spending proportionally but remember it can be a good opportunity to change/try or mix a new lead system.

Cross Sell / Up Sell
Increase your efforts to sell other products or upgrades to your current clients. This will not only increase your revenue per client but also reduce churn.

Process Improvement
Analyse your customer & operations journey to detect pain points. Attacking some bottlenecks can have two outputs, you can make the process faster to the client increasing your value or cheaper to offer increasing your margin.

Renegotiate Clients Payment Terms
Decreasing your Clients Payment Terms will give you some breathing room when implemented, but remember that after a complete cycle, you will be again in your start point. Use it well.

Improve Collection Management
Going after bad debt is always a classic approach. It's up to you to make the chase profitable.

Renegotiate Suppliers
Increasing your Suppliers Payment Terms will give you some breathing room when implemented, but remember, like in Clients Payment Terms, after a complete cycle, you will be again in your start point. Use it well.
Simultaneously you can check for alternative suppliers and/or renegotiate current suppliers. Also, evaluate what’s the most efficient payment method for you.

Reduce unnecessary stock/inventory
Do it but without compromising on service levels or risking stock outages. Not only will you reduce your standing money, but as you perfect it, you will need less storage space cutting even more your costs.

Manage Overhead
Renegotiate rent. Save on utilities like electricity, phone, internet, insurance. Control your swag merchandise. Are just some examples. You need to go and look deeply in your own cost lines to check where there are savings possibilities. No more nice-to-haves. Business essentials only.


On purpose I left out one topic. Evaluating your Payroll. It’s easy to simply cut down your payroll but please think very carefully and preferably twice about it. This could be a short-term fast solution but will never be the long-term solution.

Finally keep in mind, the best option for your business, most probably, will be a combination of various initiatives.

Even for those without negative cash flow, I believe, this is a nice list to keep close to the heart because thinking about revenue streams should not be only when business is rough.

What are you waiting for?
Go on and don’t be Negative!

 

And remember:

Negative Cash Flow isn't just a Treasury issue;
it concerns all Business.

Do you have other ways to fight negative cash-flow? Please do tell me in the comments below.






Inspirational References & Further Reading for those interested
https://www.bain.com/insights/five-steps-to-optimize-net-working-capital/
https://www.forbes.com/sites/forbescoachescouncil/2020/05/11/16-creative-ways-to-diversify-your-revenue-streams-during-tough-times/
https://100mba.net/mba1644/ More Revenue in 45 Days