How to Minimize Negative Cash Flow in Business

Basic accounting steps can create positive cash flow

Eliminating negative cash flow is necessary for business survival and profitability. Minimize negative cash flow in a business by adding up all expenses-this includes time spent on finding new customers-and adding up projected income. This process helps a business owner make strategic decisions on raising prices and cutting expenses. Spending time reviewing expenses and income will give a business owner confidence in leading the company.

Things You'll Need

• Profit and loss report
• Files for receipts
• Budget review schedule

Instructions

1. 

   Take a close look at all income and expenses

   Enter all receipts in an accounting system. Review all normal monthly expenses such as salaries, payments to vendors, and utilities. Add up additional costs, like paying for business mixers as a marketing expense, and reimbursed travel expenses. Add all the expenses together to get monthly, quarterly, and annual totals. Decide if any expenses can be reduced. Print a profit and loss detail from the accounting system.

2. Review the current client list and add up the complete monthly income. Look ahead one to three months to see what future monthly income the business will generate. Write a list of prospective clients who are most likely to do business. According to a 1999 article, "Understanding, Planning, and Managing Cash Flow" by Rob Holland of the University of Tennessee, you should review all existing clients who have not paid and decrease the amount of money that is owed to you. Make on-time payments a priority since overdue accounts receivables can pull down a business, according to Holland.

3. Estimate how much time and money is necessary to acquire one new customer; then estimate how much money one new customer typically generates in the first year. Determine if a new customer creates a negative cash flow situation for the first month or six months. Raise prices if new customers do not generate a profit. Plan on selling more to existing customers to reduce the cost of making sales.

4. Confirm the present cash availability after accounting for all paid and unpaid bills.

5. Make hard copy files to organize all paper receipts, utility bills, and other expenses. Enter all expenses each week in an accounting system or hire a bookkeeper who may only need two to three hours weekly to keep records current. Review the budget each week to determine the amount of upcoming monthly expenses and the amount of expected income for the current month and the current quarter.

Tips & Warnings

• Set aside time to learn the full cash flow picture even if it means not working on a client project temporarily.

• Do not subsidize the business using high interest loans like credit cards for more than one business quarter.

• Do not blame business partners or spouses for a negative cash flow situation; plan to make positive changes.

References

• Cpa.utk.edu: pdffiles: Understanding, Planning and Managing Cash Flow
• Sideroad.com: Business: Cash Flow: Cash Flow Management: 10 Rules You Can't Ignore

Resources

• Bnet.com articles on accounting
• Entrepreneur.com article on bootstrapping
• Harvard Business Publishing: Building Your Business