Business can face shortfalls at any time of the year, and during economic recessions; it becomes worse. However, we cannot always blame economic recessions because poor management of cash flow or simply lack of income in a business can lead a lot of businesses to lose cash flow and have to suffer through negative balances.

But first, how do you even know your business is suffering from negative cash flow?

Sometimes, your business may have more incoming than outgoing money. This is great because it means your business has positive cash flow and you’re able to cover expenses should you lack income in future, and this also means that you’re earning more than you’re paying.

On the other hand, your business could experience a negative cash flow. Negative cash flow happens when you have more outgoing than incoming funds. In other words, you’re making less money than what you’re consistently spending.

We need to always keep in mind that in future – long-term negative cash flow can do serious damage to businesses. A small business could experience late fees, penalties, and a ruined reputation. If you have negative cash flow, you should take all the necessary steps to recover.

Now that you know your business is going through negative cash flow; how do you go about recovering from this financial hurdle?

1.     Become an Active Participant

First things first; you have to be an active participant in your recovery processes. Working hand-in-hand with your accountant when it comes to your recommendations and the steps you should take to recover gets you better results and allows you to recover quicker.

When we say “become an active participant” we mean just that. Submit all necessary documents on time, attend meetings, be honest about how your business utilises cash etc. This makes the process easier and helps the accountant understand the exact measures that need to be taken to ‘rescue’ your business.

2. Determine the Source

Before you move forward, it is key to reflect on what caused the issue you’re dealing with. By knowing the source of the problem, you can create targeted solutions. And, you can prevent the same issues in the future.

More often than not – the cause of a negative cash flow lies in your operations when you do not make enough or spend too much. Look for operational cash flow issues by comparing all your accounts (receivables and payables).

3.     Reduce Expenses and Liabilities

Are you spending more than you should? Taking up too much long-term debt? Well, it’s about time you put a dent in your cash flow resolution efforts by controlling costs in your business.

Try to list every cost your business has and narrow down which expenses to get rid of. Weigh the risks and rewards of each expense/liability and how eliminating it will affect your business (think about the future).

4.     Change Your Payment Terms

We cannot stress this factor enough. Although most businesses tend to dismiss this; your payment terms can influence cash flow. If you invoice customers and have a negative cash flow, it’s time to revisit the payment terms on your invoice and make the necessary adjustments.

Take a look at your invoicing procedures to see how long it usually takes customers to pay. Do you wait months after making a sale to receive payment? If so, consider reducing the number of days customers have to pay.

As a small business, you have the advantage of getting to know your customers. Work with late-payers and come up with a compromise. Always be professional and make sure you get paid on time.

5.     Make Way for Other Income Streams

By this I mean; create opportunities for your business to make extra income. The quickest and most effective way to do this is if you run a promotion.

To stabilize your business’s cash flow, it is best to always look into increasing revenue by holding a promotion. Advertise the sale to your social media connections, email lists, and customers. 

Discounts encourage your customers to buy in larger quantities. You can also sell old inventory that is taking up space at a reduced price or you could also sell equipment you no longer use to help recover from negative cash flow issues.

Recovering from a negative cash flow balance takes time and patience. You need to be willing to take all the steps and procedures that are put in place to assist your business in recovering. Cash flow is an important aspect of your business. Treat it as such – take action today for improvements.