Negative Cash Flow: what are the causes and how to avoid it?
Ending the month with a negative balance is a situation that every entrepreneur is subject to face, especially at the beginning of the business, when there is a need to invest in projects that may or may not generate profit. However, mechanisms and strategies to minimize its occurrence in the company should be sought, as not being aware of how to deal with negative cash flow can lead to the enterprise’s bankruptcy.
Therefore, in addition to knowing and mastering the production and business development processes, leaders should have a planned management for the financial control of the corporation. To help you manage your company’s finances more efficiently, we have prepared this article containing the main mistakes that cause this deadlock and the ways to avoid them. Are you interested in this topic? Then read on and stay on top of it!
What are the main mistakes that cause negative cash flow?
Several incorrect operations by managers can result in a negative balance, and even bankruptcy of the business, if the company’s financial problems are not controlled. Check out some of the main mistakes that cause this deadlock!
One of the causes for a negative cash flow is the inadequate pricing of the corporation’s products and services. When defining the value of the goods, it is necessary to take into account all expenses to keep the company running, such as employee salaries, water and electricity bills, etc. This allows the established prices to be consistent with the reality and scope of the business.
Lack of control of expenses
It is very common for a company to have several unnecessary expenses for the maintenance and growth of the business. We can mention, for example, personal expenses, investments in projects that do not present return, expenses related to default etc. In order to have a positive balance at the end of the month, it is necessary for managers to create process optimization goals and work to reduce these expenses that do not produce returns to the organization.
Lack of planning
Another point that contributes to low financial results at the end of the month is the lack of planning. Many managers only aim to produce new services in the company and introduce changes to the internal production but end up not worrying about the future results of each decision made. This fact will later be responsible for failed ideas and goals that increase the company’s expenses, leaving the cash in the red.
Use of resources that are not yet real
Relying on financial resources that have not yet entered the company, such as postponed customer payments or sales forecasts, can contribute to the destabilization of the financial management. The cash flow calculation needs to be as real as possible. To this end, never add amounts that have not yet been received in the calculations. This will allow you to avoid unwanted surprises when calculating the sum of the company’s monthly financial flow.
How to avoid mistakes and carry out an efficient management?
In order to keep the monthly cash flow balance always positive, an essential tip is to plan all internal actions that involve financial costs. Organization is also the key to eliminating unpredictable and unnecessary expenses. Therefore, always update your fixed expenses and try to optimize all activities that are vital for the company, in order to reduce losses in the corporation’s internal processes and, thus, increase the profits at the end of the month.
So these were the main causes of negative cash flow and the ways to avoid it in your company. You can see that, with some measures, it is possible to reverse the company’s financial situation and stimulate business growth.
Did you like the article and want to know more about how to perform an efficient management in your enterprise? Then contact us and talk to one of our consultants!