Identify The Main Sections On A Statement Of Cash Flows. Correcting a Negative Cash Flow

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Correcting a Negative Cash Flow

Your business may be headed for bankruptcy if it has a negative balance in the ‘Net Change’ section of the cash flow statement. Urgent attention is needed because failure to correct this negative trend will inevitably cause your company to run out of money.

The cash flow statement has five sections:

  1. Beginning cash balance
  2. Cash
  3. Payment
  4. Net change: (payment – payment)
  5. Closing cash balance: (net change + beginning cash balance)

To correct a negative balance in the ‘Net Change’ section, you have only two options: increase the amount of cash coming into your business (income) or decrease the amount of cash going out of your business (expenses) as shown below :

To increase income:

  1. Offer discounts:
  2. Establish incentives to encourage your customers to pay you in cash. For example, offering a 2% discount on a cash purchase can help you get some much-needed cash. In addition, offer discounts to clients who settle their obligations within 10 to 30 days; this will reduce the amount people owe you (receivables).

  3. Avoid some clients:
  4. Avoid clients who pay late or default and focus only on those who pay you on time. This is the fastest way to increase cash collection.

  5. Implement the same day rule:
  6. Send invoices to your clients as soon as you provide your services. Cash all checks you receive at the same time at the end of the same business day.

  7. Be careful with the loan offer:
  8. If possible, ask for references or request a credit check.

How to reduce costs and how to reduce consumption:

  1. Analyze ALL costs:
  2. By carefully analyzing all your expenses, you could identify unnecessary ones.

  3. Exchange:
  4. If you have friends who work in other industries, you could use barter instead of cash. For example, if you are in the landscaping business and your friend works at a print shop, you could offer free landscaping services in exchange for printing services.

  5. Reduce your inventory:
  6. Inventory is not cash! Until the inventory is sold, this prevents you from having cash on hand. It is important to have as little stock as possible.

Advice: Reduce costs as much as possible! Look carefully at the expenses column in your cash flow. Often small things that don’t matter seem insignificant. However, saving just a few dollars a month will really help.

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