What Is Negative Cash Flow?

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A business faces negative cash flow when it spends more money than it makes during a specific period. A company’s free cash flow shows the amount of cash it has left over after paying operating expenses. When there’s no cash left over after expenses, a company has negative free cash flow.

4 Reasons Your Cash Flow May Be Down

If your cash flow isn’t positive, that doesn’t always mean your company is in the red. There are a number of reasons your cash flow may be temporarily down, such as:

  • Mismatched spending and income. Paying bills for purchases made in previous quarters or annual expenses like your taxes could negate your cash flow. To avoid this, set aside funds for expenses as they are accrued rather than taking from one period’s cash flow to cover the expenses of other periods. The SCORE cash flow template could help to keep you on track.

Female business owner calculates her negative cash flow in her home office

  • Fraudulent activity. Unexplained negative cash flow could be a sign of theft or fraud. If you suspect an employee, vendor or other individuals may be stealing from your company, hire an outside expert to help you investigate. To prevent fraud in the future, install security cameras, divide tasks among employees, and change your inventory tracking system.
  • Large cash outflows. If your company is spending big bucks to cover equipment and expansion costs, you may show more cash outflow than cash intake for the month, quarter or year. If purchasing new equipment will tie up your cash flow, you may consider leasing the equipment instead of purchasing it outright.
  • Actual loss. Negative cash flow may actually mean your business is losing money, especially if you’re seeing it again and again. You may be able to solve this problem by increasing prices, expanding your market share, cutting costs or adding new products or service lines.
If your cash flow has been negative for some time, finding the problem and developing a solution will help your small business build positive cash flow moving forward.